The oil and gas business has its share of firms trying to lure investors with highly optimistic predictions, but those green investment come-ons can be pretty slick, too, warns FINRA.
An alert put out this week by the Financial Industry Regulatory Authority (FINRA) warns folks to be wary of green energy investments that promise large gains from investing in companies purportedly involved in developing or producing alternative, renewable or waste energy products.
The alert, Save Your Greenbacks–Don’t Fall for Green Energy Scams, explains how green energy scams typically work, with enticements via Twitter, text messages, faxes and webinars that use aggressive, optimistic and potentially false and misleading statements. They’re all aimed at creating “unwarranted demand for shares of a small, thinly traded company.” You buy in, they sell out, classic ‘pump and dump.’
What are the signs of a scam? It’s all pretty obvious stuff, but it’s worth repeating given how many people fall for this.
• Unsolicited communication such as faxes, emails, text messages, tweets, and strategically placed “opinions” in blogs and message boards, usually related to a very low-priced stock.
• Seminars and webinars that use short-term incentives and bonuses, along with aggressive sales tactics.
• Price targets or predictions of swift and exponential growth.
The use of facts from respected news sources to bolster claims of the size of the market for a new product or technology (“this is a billion dollar market…”).
• Mention of associations with or actions by federal and international governments that bolster a company’s product or service (“The President wants hydrogen to be part of the solution for Detroit…”).
• References to actions by well-known companies used to justify growth of the company being touted. When a large oil company launched a “nitrogen-enriched” gas, this was quickly seized upon to validate the business prospects of a touted company, even though there was no direct link between the two.
• 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 energy marketplace. (“Company XYZ will be the Exxon of the 21st century…”)
• Products that are only in the development stages or that claim “working prototypes” but no actual products on the market.
Unverifiable claims of enormous energy efficiency.
• Pressure to invest immediately.
Just in case you think FINRA is picking on the renewables community, they’ve done similar warnings for energy stocks. The Securities and Exchange Commission also has a similar document warning against oil and gas scams. Likewise for the North American Securities Administrators Association, with a warning on oil and gas investment fraud.