The Securities and Exchange Commission issued an advisory Thursday warning investors to be wary of promoters "touting companies purportedly involved in clean-up efforts, trading programs that falsely guarantee high returns, and classic Ponzi schemes."
After Hurricane Katrina, the SEC brought a number of enforcement actions against individuals and companies promising high returns for small, thinly-traded companies that supposedly would reap huge profits from recovery and clean-up efforts.
"The classic pump and dump, with insiders owning shares for less than a penny a share and getting investors to buy in, then the founders cash out at the top and investors get left holding the bag – this is probably the most common hurricane-related investment scam that we see," says Chicago securities attorney Andrew Stoltmann, who has worked extensively on investment fraud cases.
"Promises of fast and high profits, with little or no risk, are classic signs of fraud," the SEC said. Follow the same checklist you would before making any investment.
Make sure you ask questions. Be skeptical if you are approached by somebody touting an investment opportunity. Ask that person whether he or she is licensed and whether the investment they are promoting is registered with the SEC or with a state. Check them out with the SEC at sec.gov, FINRA at finra.org or your state securities regulator at nasaa.org.
Even those who want to help hurricane victims should be wary of one of the most common scams after a natural disaster – bogus requests for charitable donations. You may receive requests to donate to charities that simply do not exist. Be wary of unsolicited emails or solicitations on social media. Legitimate charities usually aren't actively seeking out donations in the immediate aftermath of a disaster.
Symantec, the global computer security software company, says, "We are observing spam messages related to the hurricane. The top word combinations in message headlines are 'hurricane – sandy,' 'coast – sandy,' 'sandy – storm,' and 'sandy - superstorm'." Some messages, such as "Help Sandy Victims and get $1000 from Best Buy!," use the name Sandy to lure you into clicking on a link with promises of getting a $1,000 gift card or a $1,000 loan, according to Symantec .
Make contributions directly to organizations rather than relying on others to make the donation on your behalf and validate the legitimacy of the organization by directly accessing the recognized charity or aid organization's website rather than following an alleged link to the site.