Hurricane Watch: Don't Let This Year's Storm Season Blow in Disaster-Related Stock Fraud
Hurricane Season is officially here—and predications are already swirling that 2017 could be produce an above-average number of storms. It may not be possible to predict when the next hurricane or other natural disaster will take place, but one thing you can count on is that, when it happens, scammers will try to take advantage of the situation.
Never rely solely on
information you receive
in an unsolicited e-mail,
text message or other
form of communication.
The tips below will help you protect against stock scams that tout the promise of huge gains in the wake of the next "big one."
In years past, stock promotions touted "massive run ups" in a stock’s price in the aftermath of the storm "as demand to repair homes skyrockets.” You can expect unsolicited faxes and spam about investments that exploit a variety of hurricane-related opportunities. Best bets for scams include stocks associated with clean-up or rebuilding and those that purport to take advantage of refinery issues and the rising cost of oil and gas.
These actions may culminate in a classic "pump and dump" fraud. Investors are lured with aggressive and optimistic statements about the business through press releases, emails and other promotions intended to create demand for the company's shares (the pump). Once the share price and volume spike, the fraudsters behind the scam sell off their shares at a profit and stop hyping the stock, causing the price to fall and leaving investors with worthless, or near-worthless, stock (the dump).
It's conceivable that some of the claims that are being made may be true, but they could turn out to be fraudulent hot air. Just like a hurricane, they can be very damaging, in this case to your portfolio.
Spotting Potential Hurricane Investment Scams
Unsolicited text, email and other types of spam about investments that exploit a major disaster frequently include:
- Price targets or predictions of swift and exponential growth.
- The use of facts from respected news sources to bolster claims of a price run up, for example that some percentage of the billions of dollars it will take to rebuild after the hurricane will contribute directly to a company's bottom line.
- Mention of contracts or affiliations with federal government agencies or large well-known companies.
- Standard corporate developments, like contracting with a supplier, presented as major events.
- Statements about how much easier it is for low priced stocks to skyrocket in value in comparison to higher-priced stocks.
- Pressure to invest immediately, such as "You must act now!"
4 Tips to Avoid Getting Scammed
To avoid potential scams, make sure you get the information you need to make a wise investment choice.
1. Investigate before you invest. Never rely solely on information you receive in an unsolicited e-mail, text message or other form of communication. It's easy for companies or their promoters to make glorified claims about new products, lucrative contracts, or the company's revenue, profits, or future stock price.
2. Do some sleuthing. Find out who is at the controls of a company before you invest. A basic Internet search is a good place to start. Proceed with caution if you turn up indictments or convictions of company officials, or news reports that raise red flags. Likewise, try to contact the company and its personnel. Non-working phone numbers and bogus business addresses often can be revealed through a simple phone call or Internet search.
3. Find out where the stock trades. Most stock pump-and-dump schemes involve stocks that do not trade on The NASDAQ Stock Market, the New York Stock Exchange or other registered national securities exchanges. Instead, these stocks tend to be quoted on an over-the-counter (OTC) quotation platform like the OTC Bulletin Board (OTCBB) or the OTC Link Alternative Trading System (ATS) operated by OTC Markets Group, Inc. Companies that list their stocks on registered exchanges must meet minimum listing standards. For example, they must have minimum amounts of net assets and minimum numbers of shareholders. In contrast, companies quoted on the OTCBB or OTC Link generally do not have to meet any minimum listing standards (although companies quoted on the OTCBB, OTC Link's OTCQX and OTCQB marketplaces are subject to some initial and ongoing requirements).
4. Read a company's SEC filings. Most public companies file reports with the SEC. Check the SEC's EDGAR database to find out whether the company files with the SEC. Read the reports and verify any information you have heard about the company. But remember the fact that a company that has registered its securities or has filed reports with the SEC doesn't mean that the company will be a good investment.
If you're suspicious about an offer or if you think the claims might be exaggerated or misleading, please contact FINRA. Complaints about unsolicited emails, text messages and other communication may also be directed to the Federal Communications Commission. You can file a complaint online at the FCC's Web site: www.fcc.gov.
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