A 2011 top investor trap, "hot" gold stock scams and gold investments schemes are all over the Internet. Investors still wary of the volatile stock market are lured to invest by aggressive sales tactics, ubiquitous marketing campaigns, and the high price of gold bullion. Unfortunately, according to a recent investor alert issued by FINRA, many of these heavily marketed "great deals" are scams.
"Many gold-related investment scams involve the stocks of gold mining and/or exploration companies," wrote FINRA. "The stock value is often based on gold reserves that are difficult to estimate, much less verify. While stock promoters regularly cite the potential value of a gold reserve, some statements can be deliberately misleading."
Last year, the SEC filed a fraud complaint against Quri Resources, Inc. (Quri), a purported mining company headquartered in Miami, Florida with operations in Ecuador, and its CEO, Jaime Santiago Gomez. The complaint accused Quri and Gomez of issuing "a series of false press releases and other misleading public statements" about Quri's gold mining activities, including the claim that the company "was ready to begin drilling on a mining project in Ecuador with a probable gold reserve worth over $1 billion." In reality, Quri had no money and no expectation of raising the funds necessary to begin the project.
To protect themselves from scams like Quri's, FINRA recommends investors investigate a marketing campaign or sales person's claims before investing in gold products, and check the SEC's EDGAR database for any available information about the company.
FINRA also suggests that investors watch out for the red flags that may signal a gold stock scam, such as:
- The words "prime buyout target" in promotional materials;
- "Price targets or predictions of swift and exponential growth;"
- "Claims that tie stock performance to the general rise in gold prices;" and
- Assertions that a mine could hold "billions in unrecovered gold," because of a neighboring mine's success.
For additional tips on avoiding gold investment schemes, read FINRA's full alert here.