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Investor Alert

Investment Scams Follow in the Wake of Natural Disasters

Millions of concerned people from around the world respond to natural disasters with an outpouring of relief and generosity. Some, however, seek to use tornadoes, earthquakes, tsunamis and floods to their own benefit—at the expense of unsuspecting investors.

FINRA is issuing this Alert to warn investors about investment scams that seek to capitalize on natural disasters by linking their products and services to efforts responsive to the latest natural disaster. To avoid exposing your finances to undue risk, learn how to spot such scams and know where to turn for help.

Spotting Potential Scams

Many investment scams, like those associated with the crisis following the earthquake, tsunami and nuclear accidents in Japan, may arrive in a variety of ways—from phone, fax, email or text message solicitations to webinars, infomercials, tweets, blogs or message board posts. Regardless of how you first hear about them, these ploys typically contain classic red flags of fraud.

In particular, fraudsters may try to lure you with very aggressive, optimistic and potentially false and misleading statements or press releases that create unwarranted demand for shares of some small, thinly traded company. The con artists behind the scam can then sell off their shares, leaving investors with worthless stock. This is what's known as a "pump and dump" fraud. For example, one company seeking to capitalize on the 2011 crisis triggered by the earthquake, tsunami and nuclear accidents in Japan disseminated a press release promoting its "new generation" of radiation detectors, yet according to public documents the company was in weak financial condition and did not have any manufacturing capabilities.

How do you spot potential scams and distinguish frauds from legitimate investment opportunities? Rip off tip-offs include:

  • Unsolicited communication such as phone calls, faxes, emails, text messages, tweets and strategically placed "opinions" in blogs and message boards, usually related to a very low-priced stock.
  • Price targets or predications of swift and exponential growth.  One press release related to the crisis in Japan stated that a new technology it developed to clean up radioactive waste was "very likely to cause a huge boost to immediate-term gain possibilities."
  • Mention of associations with or actions by federal and international governments that bolster a company's product or service.  For example, in March and April 2011, a reseller of handheld radiation detection devices issued press releases claiming they had entered into an agreement with the U.S. Department of Commerce's Commercial Service to be listed as a "Featured U.S. Exporter" in Japan, and that they were poised to begin shipping.  Its shares traded below $0.01 and had been featured by various penny-stock promoters.  However, in a year-end 2010 SEC filing, it reported losses of over $4.5 million, an accumulated deficit of over $45 million and virtually no revenue.
  • References to well-known companies used to justify the growth of the company being promoted.  For instance, a company in very weak financial condition issued a press release stating that they would be providing supplies to aid in Japan's recovery.  Importantly, the release attracted readers and tried to add credibility by including the names and ticker symbols of several well-known companies that were traded on the New York Stock Exchange. 
  • Claims that they're the next big thing. Companies that, despite having not produced any revenue to date, are purported to have a new technology that will allow it to dominate the marketplace.
  • Products that are only in the development stages or that claim "working prototypes" but no actual products on the market.  Less than three weeks after disaster struck Japan, one company began promoting the development of an "earthquake resistant building," but their design had only been tested once on a "shaker-table" designed to simulate earthquakes.
  • Pressure to invest immediately.

How to Avoid Being Scammed

One sure-fire way to avoid being taken in by an unsolicited recommendation is to ignore it—regardless of how it comes in. Someone claiming to be an unbiased observer—whether in a phone call, fax, email, text message or blog post—could very well be a paid promoter or con artist. Especially online, a single person can use multiple aliases to create the illusion of widespread interest.

To steer clear of potential scams, follow these tips.

  • Consider the source. Never rely solely on information you receive in an unsolicited phone call, 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, unsubstantiated claims about new products, lucrative contracts or the company's revenue, profits or future stock price.
  • Always ask: "Why me?" Another tip-off that you're potentially being scammed is that the message is unsolicited, which raises the obvious question: Why would a total stranger tell you about a really great investment opportunity? The answer is that there is no such opportunity. In many scams, those who promote the stock are corporate insiders, paid promoters or substantial shareholders who profit handsomely if the company's stock price goes up.
  • 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. Even technologies that show promise might be years or decades away from coming to market—let alone turning a profit.
  • Find out where the stock trades. Most unsolicited spam recommendations involve stocks that can't meet, or choose not to meet, the listing requirements of The NASDAQ Stock Market (NASDAQ), the New York Stock Exchange (NYSE) or other registered national securities exchanges. Instead, these stocks may be quoted on an OTC quote platform like the FINRA-operated Over-the-Counter Bulletin Board (OTCBB) and the platform operated by OTC Markets Group, Inc., formerly known as the Pink Sheets.

    There are important differences between trading OTC securities that are not exchange-listed and trading securities that are formally listed on exchanges such as NASDAQ and NYSE:
    • Generally, there are no minimum quantitative standards that a company must meet to have its securities quoted in the OTC market. While OTC market companies have no obligation to file annual or quarterly reports with the SEC, certain OTC quote platforms require quoted companies to file timely financial reports.
    • Many of the securities quoted in the OTC market, including securities quoted on quote platforms operated by the OTC Markets Group, Inc. do not have a liquid market. They are infrequently traded and can move up or down in price quickly. This may make it difficult to sell your security at a later date.
  • Read a company's SEC filings, if available. Most public companies file reports with the Securities and Exchange Commission (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 that just because a company has registered its securities or has filed reports with the SEC does not mean that it will be a good investment.
  • Look beyond a company's name. The fact that a company includes the name of the affected country in its name can be misleading—and does not necessarily mean the company is incorporated or based in the country or does business there.  Similarly, the fact that a company's purported business objective is reflected in its name does not guarantee the company actually delivers that product or service. Also be advised that stock promoters often change a company's name, trading symbol and even line of business in an attempt to align it more closely with a current event or issue—a trick you will be able to identify by looking at the SEC reports described above.
  • Check out the person promoting the stock or investment. A legitimate investment salesperson must be properly licensed, and his or her firm must be registered with the Financial Industry Regulatory Authority (FINRA), the SEC or a state securities regulator—depending on the type of business the firm conducts. To check the background of a broker and his or her firm, or an investment adviser or representative, use FINRA's BrokerCheck. Also, be sure to call your state securities regulator. You can find that number in the government section of your local phone book or by contacting the North American Securities Administrators Association (NASAA).

If a Problem Occurs

If you believe you have been defrauded or treated unfairly by a securities professional or firm, please send us a written complaint. And if you suspect that someone you know has been taken in by a scam, be sure to give us that tip. Here's how:


File a Complaint (for you)
Send a Tip (for others)

Mail or Fax:

FINRA Complaints and Tips
9509 Key West Avenue
Rockville, MD 20850
Fax: (866) 397-3290

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