As COVID-19 continues to impact capital markets around the world, securities regulators in North America are responding to an increasing number of securities-related scams. Provincial securities regulators across Canada, as well as the United States Securities and Exchange Commission, have now issued official warnings about fraudulent investment offerings and other scams that target investors.
Many of the alleged scams involve “pump and dump” tactics, where the perpetrators artificially inflate the price of a stock by releasing false information, then sell their stock before the market learns that the information was false. For example, on April 23, 2020, the Ontario Securities Commission and the Royal Canadian Mounted Police issued a joint warning advising investors to be cautious of any claims that a company has developed products or services for detecting, preventing, or curing the coronavirus. Such claims bear hallmarks of a pump and dump scheme. Other alleged scams attracting warnings from securities regulators exploit investors’ fears by emphasizing the impact of COVID-19 on capital markets and then aggressively promoting stocks that are claimed to be well positioned for a recession.
To combat these emerging securities-related scams, the North American Securities Administrators Association formed a COVID-19 Enforcement Task Force on April 28, 2020. The task force consists of Canadian and U.S. securities regulators, and its mandate is to proactively identify, disrupt, and deter COVID-19 related scams. The task force has already identified as many as 200,000 internet domain names that will be analyzed for COVID-19 related scams and other threats to investors. Individual regulators working on the task force will be responsible for responding to threats in their jurisdictions.
Based on these developments, we expect an increase in regulatory enforcement proceedings to prevent and prosecute securities-related scams. Indeed, the United States Securities and Exchange Commission has already issued a number of trading suspensions due to concerns about the accuracy of COVID-19 related information, and on April 28, 2020, announced its first COVID-19 related enforcement action against a company alleged to have falsely claimed it could supply N95 masks in large quantities. Given that securities regulators in Canada have issued warnings and now joined the COVID-19 Enforcement Task Force, we expect a similar rise in COVID-19-related enforcement proceedings to follow in Canada.
The author would like to thank Brandon Schupp, articling student, for his contribution to this article.