12.29.2009 The Financial Industry Regulatory Authority (FINRA) issued an Investor Alert warning investors 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 new Investor Alert, Save Your Greenbacks—Don’t Fall for Green Energy Scams, explains how these green energy scams typically work. In some schemes, con artists are using everything from tweets and text messages to webinars and faxes to lure investors with very aggressive, optimistic, and potentially false and misleading statements that create unwarranted demand for shares of a small, thinly traded company. This is a classic “pump and dump” fraud where con artists behind the scheme then sell off their shares, leaving investors with worthless stock. Fraudsters are also using green investing as a hook for Ponzi schemes, where a scammer uses incoming funds from new investors to pay purported returns to earlier stage investors.
The Alert warns investors to ignore unsolicited investment recommendations and to question the source of investment information. Investors should also be wary of investments that claim to be the next big thing and promise exponential returns. Another red flag for a green scheme is a hard sell that pushes investors to go “all in” on a new investment initiative. In a recently alleged Ponzi scheme, investors were encouraged to liquidate their traditional investments, such as retirement plans stocks, bonds and mutual funds, and to borrow against their home or business, so that they could invest in one company’s “green” initiatives. However, according to a complaint filed in federal court, the company did not generate any income from which the promised returns—ranging from 17% to “hundreds of percents” annually—could be made.
In addition to giving investors detailed advice on how to spot potential scams and distinguish frauds from legitimate opportunities, the Alert also offers tips on how to make sound decisions and where to go to learn more about a company or stock before investing in it.
Click http://www.finra.org/Newsroom/NewsReleases/2009/P120645 to access the release. Click http://www.finra.org/Investors/ProtectYourself/InvestorAlerts/FraudsAndScams/P120644 to access the investor alert.