Federal officials are warning investors to be wary of pump-and-dump schemes in the aftermath of the BP oil spill, according to The Sacramento Bee.
These scams are relatively common after a natural or environmental disaster, and several popped up in the aftermath of Hurricane Katrina. In a pump-and-dump scheme, a company goes to great lengths to promote its ability to aid in recovery and rebuilding. When new investors pour in, company officials benefit from the inflated share prices by cashing out. Prices then plummet, and investors are left holding over-inflated stock.
Last week, out of concern for the public interest, the SEC suspended trading in ACT Clean Technologies stock, which is currently listed on the Pink Sheets stock exchange. Trading will resume after June 8, according to Daily Finance.
The SEC's statement questions the accuracy of ACT's assertions that: 1) BP has expressed interest in using technology owned by an ACT subsidiary to assist in cleaning up the Gulf oil spill, 2) field tests were requested by BP, and 3) the oil fluidizer technology owned by ACT's subsidiary has been shown in field tests to be an effective agent for clean up efforts.
ACT is the first company to be reprimanded by the SEC for actions involving the BP oil spill, but it may not be the last. FINRA vice president for investor education, John Gannon, was quoted in a June 1 The Sacramento Bee article as saying: "We're never surprised by these scams."
To learn more about oil downturn, watch the video below.