Secretary of State’s Office Cautions Investors to Be Wary of Marijuana Schemes, Other Classic Threats Packaged as New Products

Post Date:11/19/2014

Contact: Catherine Lu 
             (702) 486-6982 / 334-7953 

(Carson City, NV; November 19, 2014) – The Secretary of State’s office today identified emerging threats facing investors in 2015, one of the most relevant concerns to Nevadans being the potential threats tied to marijuana industry investments. With the emergence of the medical marijuana market and the possibility of marijuana legalization in Nevada, Secretary of State Ross Miller warns investors to beware of scam artists attempting to capitalize on the high potential of this newly legal market.

Securities regulators are already seeing “pump and dump” scams tied to certain marijuana businesses, in which scammers lure investors with aggressive, optimistic, and potentially false or misleading information designed to create unwarranted demand for shares of a small, thinly traded company with little or no history of financial success (the “pump”). Once share prices and volumes peak, scammers behind the ploy sell their shares at a profit, leaving investors with worthless stock (the “dump”).

“Classic threats to investors, such as the pump and dump scam, are morphing into new or altered dangers, many fueled by the internet,” said Miller. “Investors should think carefully and do their due diligence before jumping into any investment, including marijuana-related investments. Remember, if it sounds too good to be true, it probably is.”

As well as marijuana industry investment scams, the Secretary of State’s office also warns investors to be cautious of the following threats facing unwary investors throughout North America. The Enforcement Section of the North American Securities Administrators Association (NASAA), of which the Nevada Secretary of State’s office is a member, compiled the list.

Emerging Threats:

  • Binary Options

Binary options are securities in the form of options contracts that have a payout that depends on whether the underlying asset – for example, a company’s stock or a stock index – increases or decreases in value. In such an all-or nothing payout structure, investors betting on a stock price increase face two possible outcomes when the contract expires: they either receive a pre-determined amount of money if the value of the asset increased over the fixed period, or no money at all if it decreased. Particular investor risks are that the option is an all-or-nothing payout structure and investors can easily lose their entire investment.

  • Stream-of-Income Investments

Investors looking for monthly returns are being enticed to invest by companies that introduce investors to individuals selling a stream of income, such as pension payments or government disability payments. These investments can carry significant risks as laws may prohibit the assignment of the stream of income/benefits, the seller typically maintains the legal right to redirect the payment, and if the seller does redirect the payment, the investor may be left with an unenforceable contract right.

  • Digital Currency & Cybersecurity Risks

Digital currencies are emerging as trendy way to pay for goods and services. Bitcoin, perhaps the most popular digital currency, was priced at around $10 per unit in early 2013 but peaked at around $1,200 per unit later that year. The rapid price increase sparked considerable public interest and media attention, creating a fresh market for securities offerings tied to digital currencies. Unfortunately, unscrupulous promoters may be attempting to capitalize on this popularity by illegally offering securities tied to digital currencies.

Persistent Threats: 

  • Reg D/Rule 506 Private Offerings 
  • Pyramid and Other Ponzi Schemes 
  • Real Estate Schemes, Including Those Using Promissory Notes 
  • Affinity Fraud 
  • Internet Fraud (including Social Media and Crowdfunding) 
  • Oil & Gas Investments in the Fracking Era

Unregistered individuals continue to be the most common subject of enforcement actions by state securities regulators. “It cannot be said enough that investors should independently verify any investment opportunity as well as the background of the person and company offering the investment,” said Miller.

The Secretary of State’s office can provide detailed background information about those who are registered to sell securities or provide investment advice in Nevada, and about the products being offered. The Secretary of State’s Securities Division can be reached by calling (702) 486-2440. To file a complaint, visit the “Securities Center” on the Secretary of State’s website,, or by clicking here.

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