Investors Warned Over Energy Stock Scams
A U.S. securities regulator Tuesday warned investors to be wary of scams touting huge potential profits from energy-related stocks, when the only people likely to make money are those running the schemes.
The Financial Industry Regulatory Authority said it has identified an increase over the last several months in the "pump-and-dump" schemes, which are pitched via e-mail, fax and cell phone text messages.
That increase dovetails with a surge in oil prices that shows no signs of abating, after prices doubled over the last two years. On Friday, the price of a barrel of oil briefly went above $90.
"Scammers tend to take advantage of what's hot in the news," said John Gannon, a FINRA senior vice president of investor education, in an interview. "Oil prices have been climbing for quite some time, gas prices are always in the news, and scammers are pitching schemes to take advantage of investors looking for a quick buck."
In a typical pump-and-dump scam, a firm touts small, little-known companies - the "pump" - with baseless price predictions, misrepresentations and hyperbole.
The idea is to create artificial demand to boost companies' stock prices. Scammers then sell their own shares at a profit - the "dump" - causing prices to fall, and saddling investors with losses.
In one scam, investors were told to expect huge returns if they invested "RIGHT NOW" with a Texas energy company that had entered a venture with a $23 billion Chinese oil monopoly.
In another, investors were promised they could "stuff their pockets" by investing in a "Texas dynamo," turning a $5,000 investment into $26,500 in as few as four months.
Gannon said most investors know better, but that "it takes only a few for scammers to make money."
The U.S. Securities and Exchange Commission has warned of similar scams touting oil and gas investments.
Gannon said investors should "exercise skepticism," consider the source of a pitch, and determine whether the stock being touted trades on a major platform such as the New York Stock Exchange or Nasdaq. Gannon also advised people to review a company's finances and business prospects before investing.
"There are many global, blue-chip companies with well-diversified portfolios that investors can choose from if they want to invest in energy markets," Gannon said. "These companies have broad disclosures in regulatory filings, so investors can read that information and assess it."
FINRA regulates nearly 5,100 brokerages. It is the successor entity to the National Association of Securities Dealers.