Beware of Stock Fraud in the Wake of Hurricane Katrina

It may not be possible to predict when the next natural disaster will take place. What you can count on is that, when it happens, scammers will try to take advantage of the situation. The tips below will help you protect yourself at any time.

 

Financial fraud routinely follows on the heels of disaster. Hurricane Katrina is no exception. We are issuing this Alert to warn investors that fax and email investment scams may come your way touting stocks with the promise of huge gains in the wake of Katrina.

 

One fax claimed that Katrina would mean a "massive run up" in the company's stock "as demand to repair homes skyrockets."  Citing the enormous cleanup costs associated with the hurricane, the fax stated, "So, you can see, any company that gets a tiny slice—even one percent—of this business could add a minimum of $260 million to its bottom line."  The fax went on to urge investors to act quickly because the stock was undervalued.

 

You can expect unsolicited faxes and spam about investments that exploit a variety of hurricane-related opportunities.  Best bets for scams include stocks associated with clean-up or rebuilding and those that purport to take advantage of refinery issues and the rising cost of oil and gas.  While it is conceivable that some of the claims that are being made may be true, many could turn out to be bogus—or even scams.  This Investor Alert explains how to spot and protect yourself from these investment scams.

 

Spotting Potential Hurricane Katrina Investment Scams

 

Unsolicited faxes and spam about investments that exploit Hurricane Katrina frequently include:

  • Price targets or predictions of swift and exponential growth.
     
  • The use of facts from respected news sources to bolster claims of a price run up, for example that some percentage of the billions of dollars it will take to rebuild after Katrina will contribute directly to a company's bottom line. 
     
  • Mention of contracts or affiliations with federal government agencies or large well-known companies.
     
  • Standard corporate developments, like contracting with a supplier, presented as major events.
     
  • Statements about how much easier it is for low priced stocks to skyrocket in value in comparison to higher-priced stocks.
     
  • Pressure to invest immediately, such as "You must act now!"

How to Avoid Getting Scammed

 

To avoid potential scams, make sure you get the information you need to make a wise investment choice.

  • Investigate before you invest. Never rely solely on information you receive in an unsolicited fax or e-mail. It's easy for companies or their promoters to make glorified claims about new products, lucrative contracts, or the company's revenue, profits, or future stock price.
     
  • Find out who sent the message. Many companies and individuals that tout stock are corporate insiders or are paid to promote the stock. Look for statements (usually found in the fine print) that indicate cash payments or the receipt of stock for disseminating a report on the company.
     
  • Find out where the stock trades. Most unsolicited fax and spam recommendations involve stocks that can't meet the listing requirements of The Nasdaq Stock Market, the New York Stock Exchange, or other US stock exchanges. Instead, these stocks are usually quoted on the OTC Bulletin Board (OTCBB) or in the Pink Sheets. There are important differences between the OTCBB and the Pink Sheets and The Nasdaq Stock Market or a stock exchange: 
    • There are no minimum quantitative standards that must be met by a company to have its securities quoted on the OTCBB or in the Pink Sheets.
       
    • Many of the securities quoted on the OTCBB or in the Pink Sheets are infrequently traded and can move up or down in price quickly. This may make it difficult to sell your security at a later date.
       
  • Read a company's SEC filings. Most public companies file reports with the SEC. Check the SEC's EDGAR database to find out whether the company files with the SEC. Read the reports and verify any information you have heard about the company. But remember the fact that a company that has registered its securities or has filed reports with the SEC doesn't mean that the company will be a good investment.

If you're suspicious about an offer or if you think the claims might be exaggerated or misleading, please contact us.  Complaints about unsolicited faxes may also be directed to the Federal Communications Commission. You can file a complaint online at the FCC's Web site: www.fcc.gov.

 

Additional Resources

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Last Updated: 9/16/2005