The Gulf of Mexico undersea oil disaster has spawned a growing tide of investment scams from con artists who claim to be profiting from cleanup operations. Here's how to spot an oil-spill stock scam, and what to do if you suspect you're a victim.
The Gulf of Mexico undersea oil disaster has spawned a growing tide of investment scams from con artists who claim to be profiting from cleanup operations.
On Thursday federal regulators warned investors that while there are some legitimate, publicly traded companies promoting their role in the cleanup efforts, there are also bogus companies hoping to take advantage of investors who are eager to profit from the millions being spent on the cleanup.
On May 25, the Securities and Exchange Commission suspended trading in shares of ACT Clean Technologies Inc. (ACLH), a Huntington Beach, Calif., entity after questions were raised about its claim that BP, formerly British Petroleum, had expressed interest in using “a so-called oil fluidizer technology purportedly licensed to ACT's wholly-owned subsidiary for use in cleanup operations,” according to the statement. The company also claimed that field-test results showed the technology was effective for use in cleanup efforts in the Gulf of Mexico.
The oil spill — the worst in U.S. history – resulted from an explosion on April 22 that destroyed an oil rig off the Louisiana coast and took the lives of 11 workers. The scam warning comes as officials speculate that the costs for cleanup operations will likely be far more than initially projected. Oil is spewing out of the well at a rate of 12,000 to 19,000 barrels a day, according to U.S. Geological Survey Director Marcia McNutt. British Petroleum’s previous estimate was just 5,000 barrels a day.
Have you seen this bogus press release?The SEC and the Financial Industry Regulatory Authority said scam companies often issue bogus press releases, or send unsolicited faxes or spam emails, that include one or more of the following:
• Claims promoting products or technologies that are effective in remediating oil spills or restoring the eco-system;
• Mention of contracts or expected contracts with BP, formerly British Petroleum, that will aid the cleanup effort;
• Claims that the company is providing technical assistance or expertise to BP or to U.S. government agencies, such as the Coast Guard or the Environmental Protection Agency;
• Predictions of rapid, exponential sales growth.
Also, as is the case in most investment-related cons, the scammers put pressure on victims to “act fast” to get in on the ground floor. That's a huge red flag.
Tips on avoiding future scamsThe SEC and FINRA offered these tips to avoid oil-cleanup related stock scams:
• Investigate before you invest. Never rely solely on information contained in an unsolicited fax, email, text message or tweet—or in a blog post or online thread. It's easy for companies or their promoters to make glorified claims about product effectiveness, lucrative contracts, or the company's revenues, profits or future stock price.
• Find out who sent the message. Many companies and individuals that tout stocks are paid to do so by the company being touted. Examine the fine print for any statements indicating payments in cash or in stock for issuing the report or message.
• Find out where the stock trades. Most unsolicited fax and spam recommendations involve stocks that do not meet the listing requirements of the major stock exchanges. Instead, they usually are quoted on the OTC Bulletin Board or in the Pink Sheets, which do not impose minimum qualitative standards. Many of the securities quoted on the OTC Bulletin Board or in the Pink Sheets trade infrequently, which can make it difficult to sell your shares. When shares on the OTC Bulletin Board or in the Pink Sheets do trade, they may move up or down in price very rapidly.
• Read a company's SEC filings. Most public companies file quarterly and annual reports with the SEC. Check the SEC's EDGAR database to find out if the company is filing reports to the SEC, and read them. Be aware that registering securities and filing reports with the SEC does not mean the company will be a good investment.
• Exercise some skepticism. Scammers are very adept at making their pitches appear real, including the use of slick videos and websites. Be extremely wary of any pitch that suggests immediate pay-offs, especially if the investment involves a start-up company or a product or service that is still in development.
If you suspect you’ve been scammed, or you’ve been approached by a company you suspect of making fraudulent claims, contact the SEC’s Office of Investors Education and Advocacy and FINRA’s Complaint Center.