Business

SEC Halts Trading In Four Ebola Microcap Companies

This year’s Ebola virus outbreak has been the worst in history, with over 5,000 lives claimed so far in the outbreak.  Originally started in West Africa and soon spread throughout the region, with a few isolated cases in the US and abroad. Health care workers have fallen ill after caring for infected people, some were able to be transferred to the US or Europe for treatment.  While there is no approved treatment for Ebola, there has been a widespread push for a vaccine and improving on preliminary treatment options.

Human trials of a new treatment are being tested on human subjects in a government-run hospital, Canada is experimenting with vaccines, Britain is working on vaccine trials and Mali is also reportedly working on trials of an Ebola vaccine.  The latest vaccine being tested in the US and Canada is made from an animal virus, VSV, or vesicular stomach virus. NewLink Genetics Corp (NASDAQ:NLNK) has obtained licenses for the potential vaccine.

SEC Halts Trading In Four Ebola Microcap Companies

Urgency in the trials and development in the Ebola treatments

While there is a sense of urgency in the trials and development in the Ebola treatment arena, apparently there are some that are attempting to cash in by misleading investors into believing they are developing Ebola treatments, says the Securities and Exchange Commission today.

The SEC released an Investor Alert Warnings on a host of companies “that claim to be developing products or services in response to the Ebola outbreak, citing a lack of publicly available information about the companies’ operations”.  A potential fraud warning and issued trading suspensions against Patchogue, Bravo Enterprises Ltd (OTCMKTS:OGNG), Monrovia, Immunotech Laboratories Inc., Myriad Interactive Media Inc (OTCBB:MYRYE), and Wholehealth Products Inc (OTCMKTS:GWPC).  All companies are listed as microcap stocks (aka penny stocks) that are thinly traded and the SEC believes are at risk for “pump and dump” schemes.

Elisha Frank, the Co-Chair of SEC Enforcement Microcap Fraud Task Force, said that “Fraudsters are constantly exploiting issues of public concern to tout a penny stock company supposedly in the business of addressing the latest crisis.”  Under federal laws, these companies will have their stock trading suspended for 10 days and solicitation of these companies can not commence until the issues are resolved and the companies have updated and proven their findings and products, etc.

This is just yet another example of how important due diligence is for investors who are looking to open an investment.  Buying a stock due to overall event, such as the Ebola outbreak, without any additional analysis is setting yourself up for a disastrous scenario.  A publically traded company, no matter its size, must keep shareholders and regulators in the loop on its business operations, as they develop.

Finding a stock that touts a product or service without any hard, concrete evidence is an extremely risky investment and should be avoided.  Even in today’s markets, investors need to watch their backs and continue to do thorough due diligence before placing investments.

Disclosure: No positions