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Fraud

Beware of Stock Fraud in the Wake of Natural Disasters

FINRA Staff
Hurricane Season Road Sign @istock.com/Craig McCausland

Financial fraud routinely follows on the heels of natural disasters such as hurricanes, wild fires, tornadoes, earthquakes and floods. Our tips can help you avoid investment scams that may blow in in the wake of a major disaster.

Don’t be surprised if you receive unsolicited phone calls, emails and texts, including from messaging apps, about investments that exploit a variety of hurricane- or disaster related opportunities. Best bets for scams include stocks associated with clean-up, rebuilding and breakthroughs in science and technology that purport to address current and future disaster-avoidance strategies. While it is conceivable that some of the claims being made may be true, many could turn out to be bogus—or even scams.

Spotting Potential Disaster-Related Investment Scams

Unsolicited communications about investments that exploit the latest natural 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; and
  • pressure to invest immediately, such as "You must act now!"

How to Avoid Getting Scammed

To avoid potential scams, make sure you get the information you need to make a wise investment choice.

  • Investigate before you invest. Never rely solely on information you receive in an unsolicited email, text message or cold call from a smooth talking "analyst" or "account executive" promoting a stock. 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. Use FINRA BrokerCheck® to check registration status and additional information on investment professionals and firms.
  • Find out who sent the message. Many companies and individuals that tout stock are corporate insiders or are paid to promote the stock. Look for statements (usually found in the fine print) that indicate cash payments or the receipt of stock for disseminating a report on the company.
  • Find out where the stock trades. Most unsolicited stock recommendations involve stocks that can't meet the listing requirements of the Nasdaq Stock Market, the New York Stock Exchange or other U.S. stock exchanges. Instead, these stocks tend to be quoted on an over-the-counter (OTC) quotation platform, usually at the lowest tier. 
  • 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 us

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