We've seen it before, unfortunately. Hurricane Sandy, like other natural disasters, may bring out the best and also the worst in people. Investors and consumers could be defrauded if they don't take certain precautions. Here are some common scams to be careful to avoid:
Be wary of financial advisors promising big gains in hurricane-related investments. Scam artists may prey on storm victims, particularly those who will soon be receiving a lump sum insurance payout.
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.
Also, never donate money through wire transfer services or untraceable methods of payment. Instead, use legitimate and secure channels to give to the organization directly.
Spam emails and email chain letters involving fake news, photos, donation requests, phishing campaigns, and phony video links may also become rampant in the next few days.
All of this may explode exponentially now that social media is so prevalent.
"Very common are email requests for donations and financial assistance for the victims of the hurricane. They may even appear to be from reputable sources such as the American Red Cross itself," Stoltmann says. "However, many, if not all, such requests are actually spoofed and will redirect the recipient to a malicious website or simply serve to steal the victim's identity or rob him or her of money without any benefit to the hurricane victims."
Make sure you type the website addresses directly into your Internet browser rather than clicking on links contained in emails.
Finally, some of the most common after-disaster scams involve repairs or clean-up to your car, yard or home. Verify accreditation of any contractor or repair service with the Better Business Bureau at bbb.org. Never pay in full in advance for services. The Better Business Bureau suggests paying only a third up front. Also, before making the final payment, ask the contractor to show proof that all subcontracters have been paid; if they have not, you could be liable.