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Archive for Tuesday, June 15, 2010

Gulf oil spill fuels investment, charity scams

June 15, 2010

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The magnitude of the BP spill really hit me once I starting seeing front-page photos of oil-soaked birds. One poor thing looked like a Hollywood-inspired alien or prehistoric creature.

How can you not wonder, what will it take to clean up the mess?

BP Chairman Carl-Henric Svanberg told shareholders on June 4 that the response to the disaster in the Gulf of Mexico is the company’s top priority.

“The task is by no means complete and we have a long way to go,” Svanberg said. “This is a tough job.”

He went on to say, “We will also continue to apply all of the necessary resources to the aftermath, both in the clean-up operation and in remediation and payment of legitimate claims.”

Those words, and the sad images of oil-stained waterways, beaches and wildlife, are helping some scam artists take advantage of investors who themselves are looking to make money as a result of the gushing crude that has been leaking since an explosion April 20 on the Deepwater Horizon drilling platform.

With the stock market still doing its crazy up-and-down thing, people are desperately looking for anything that will produce higher-than-average returns. But that desperation is just what slick con artists are counting on. Every disaster brings them out, and this one is no exception.

Investor alerts

The Securities and Exchange Commission and the Financial Industry Regulatory Authority (FINRA) have issued an investor alert about scams designed to exploit the BP spill.

“The sad thing is people haven’t heard the warnings enough, because these scams continue to happen,” said John Gannon, FINRA’s senior vice president for investor education. “Today it’s the BP oil spill; before it was Hurricane Katrina. The cover story changes but the scam is basically the same.”

In particular, the SEC and FINRA are warning investors about the classic “pump-and-dump” practice. In this scheme, company officials, promoters and/or fraudsters will use blogs, e-mails or message boards to pump up the noise on a certain stock that typically is selling on the OTC Bulletin Board or Pink OTC Markets Inc., formerly known as Pink Sheets. Both are electronic quotation systems that provide pricing and financial information for stocks sold over the counter.

In the case of the BP spill, a firm may falsely claim it has a new technology to stop the spill or has a contract to help in the cleanup.

Gullible investors then buy the stock, creating demand and driving up the stock price. Gannon said when the promoters think the stock has hit its peak, they sell off their shares. Once the promoters stop hyping the stock, demand goes down — along with the price. The promoters win. Naive investors lose.

In May, the SEC temporarily suspended trading in shares of ACT Clean Technologies Inc., of Huntington Beach, Calif. The commission questioned the accuracy of information the company disseminated connecting itself to BP’s cleanup efforts.

Gannon said regulators are actively investigating other companies that may be releasing bogus information related to the spill.

The pump-and-dump scam continues to work because unwary investors are quick to believe that they’ve found the next big stock hit, Gannon said.

“It gets down to the fact that people are easily swayed by phantom riches or the ability of quick wealth,” he said.

Charity appeals

And it’s not just investors who may fall victim. The oil spill’s impact on wildlife and the Gulf economy may spark an upsurge in charitable donations. Schemers know this and will try to take advantage of people’s generosity.

The Better Business Bureau’s Wise Giving Alliance has also issued a warning urging people to be careful before they give.

“As a charity monitoring organization, we have seen time and time again that contributors often make hasty donation decisions in the wake of a disaster and don’t take the time to find out specifically what a charity is doing,” said Bennett Weiner, chief operating officer of the Wise Giving Alliance. “For example, everyone is moved by the pictures of tar balls on the beach and oil-drenched wildlife, but not all of the soliciting charities are or will be involved with hands-on cleanup activities.”

If you’re suspicious about an investment offer or you suspect a company’s claims may be misleading, contact the SEC Office of Investor Education and Advocacy at www.sec.gov/complaint.shtml. You can also contact FINRA’s Investor Complaint Center at www.finra.org/complaint.

Whether you are an investor or charitable contributor, please do some research. A few Internet searches or calls can save you a lot of money and keep you from falling victim to a slick operator.

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