Investor News: Beware this latest stock scam

December 5, 2007

With fuel prices soaring and demand for energy growing in many parts of the world, it didn't take long for scam artists to try to hoodwink people into investing in shaky energy-related investments.

With fuel prices soaring and demand for energy growing in many parts of the world, it didn't take long for scam artists to try to hoodwink people into investing in shaky energy-related investments. If you've received a fax, e-mail, or even a cell phone text message touting huge returns in exchange for little risk, don't take the bait, warns the Financial Industry Regulatory Authority, the largest non-governmental regulator of US securities firms. One bogus offer, described as a "Texas dynamo," promised to turn $5,000 into $26,500 in "as soon as four months," FINRA says.

There are indeed legitimate energy-related investments, such as stocks of energy companies, mutual funds that invest in these firms, and certain oil and gas partnerships. But look hard at the numbers before you leap. While you can research the viability of companies with tools like the SEC's EDGAR database, it's tougher to get good information on limited partnerships. In general, they tend to be highly speculative and illiquid, meaning it may be difficult to sell your stake if you suddenly need to cash out. For more information, see "Pumping up returns with oil and gas," in the Oct. 21, 2005 issue of Medical Economics.