Securities and Exchange Commission Co-Directors of Enforcement Stephanie Avakian and Steven Peikin speak during a news conference in 2018. Avakian and Peikin say their office is aggressively pursuing enforcement related to the coronavirus pandemic.
Top Wall Street regulators warn against coronavirus investment scams
By Tom Dreisbach/NPR
The kind of financial schemes depicted in movies like The Wolf Of Wall Street and Boiler Room never went away, and Wall Street’s top cops are warning investors that the coronavirus has only created new opportunities for that type of financial fraud.
In response, the Securities And Exchange Commission has “substantially accelerated” its pace of enforcement related to the pandemic, says Stephanie Avakian, who co-directs the SEC’s enforcement division.
Since February, the SEC has temporarily suspended public trading of at least 16 companies’ stocks. In particular, the agency has cited concerns with companies’ public statements about supposed test kits, vaccines or treatments for COVID-19.
Among the companies that have faced trading suspensions:
Wellness Matrix Group, which as NPR first reported, sold “at-home” tests for COVID-19, despite the fact that the Food and Drug Administration has not authorized any such tests; and Key Capital Corporation, which claimed it could mass produce a “low cost” vaccine to help treat the coronavirus within “3 to 6 Months,” even though experts estimate any vaccine is at least a year away.
Wellness Matrix Group did not respond to questions about its SEC suspension.
Reached by phone in Australia, Key Capital’s chairman, Peter Boonen, denied any wrongdoing by his company. Boonen insisted that with enough funding, Key Capital’s partners could rapidly produce a vaccine, and said the SEC had misinterpreted his company’s claims.
“The SEC has no experience or expertise regarding vaccine development,” said Boonen, though he said he understood the commission “is simply trying to do its job.”
The SEC declined to comment on any individual company. But Steven Peikin, the other co-director of the enforcement division, says suspending trading in a company’s stock is one of the more serious steps the SEC can take.
“The overwhelming majority of the time,” Peikin says, “the stocks do not typically trade again.”
Beyond suspensions, the SEC can also initiate larger investigations into potential fraud, though it has not made any such allegations related to stocks it has already suspended.
Nearly all of the SEC’s actions have focused on “microcap” stocks — commonly known as “penny stocks” because the company’s shares are often worth only a few cents.
When companies are this small, Peikin says, it’s easier for bad actors to quickly inflate (or “pump”) the share price by luring in investors with misinformation, and then, once the price is high enough, sell (or “dump”).
People might assume that the days of financial con-men cold calling gullible investors to buy penny stocks are long gone. In fact, the boiler room has simply shifted to the internet message boards.
“You don’t have to rent an office and hire a bunch of people to sit in a room and make cold calls,” says Peikin, “when you can reach many many more times that number of people through social media.”
So the SEC is telling Americans to be extra cautious when investing in companies making bold claims about coronavirus-related products.
“The old adage remains as true today as it ever has been,” says Avakian, “if it seems too good to be true, it probably is.”