With Hurricane Season coming up, concerns regarding natural disasters can weigh on anyone’s mind. There is something else you should worry about, though: scammers. During this time, some scammers may try to take advantage of this difficult situation. It is important to be aware of potential schemes that falsely promise investors large gains.
After something happens—such as a hurricane—there may be plenty of unsolicited messages regarding new opportunities related to the latest natural-disaster. Some of the past instances of these scams have included promotions regarding stock price run-ups based on the rise in demand to repair homes. A majority of these scams involve clean-up and rebuilding efforts, as well as those that are purported to take advantage of increased oil and gas costs and refinery issues.
Hurricane Season is a popular time for pump-and-dump fraud schemes as investors are recommended investments in businesses involved in home repair. As soon as the price of stocks spike, fraudulent brokers sell their shares for a profit. They stop recommending the stock and the price falls, meaning investors are often left with essentially worthless stocks.
The Financial Industry Regulatory Authority (FINRA) has provided tips to spot the potential Hurricane Season scams and how to avoid becoming a victim. These scams are often promoted via unsolicited text messages, emails, and via other communication. They usually include predictions of rapid growth and facts from news sources to help their claims. It may mention contracts or associations with large, recognized companies or government agencies, as well as corporate developments. They may use calls-to-action that pressure the investor to react quickly and hype up the investment to cause a spike in stocks.
You should avoid these types of situations and FINRA’s latest tips show you how:
- Do your research – Just because you receive claims regarding an investment doesn’t mean they’re all true. Make sure you do your research on the claims being made so you’re not pressured into the investment. Take the time to find out who runs the companies promoting the investment and if they have a history of complaints. You can try and contact the company directly as this may often turn up any a non-working phone number or fake address.
- Determine where the stock trades – In many instances, these types of scam stocks are not traded on any of the registered national securities exchanges. The may use over-the-counter quotation platforms. This is because companies must meet the minimum listing standards required to have their stocks on the registered exchanges.
- Read SEC filings – The Securities and Exchange Commission (SEC) has reports filed by most public companies. Individuals can use the agency’s EDGAR database to check whether the company promoting the stock is filing with the SEC. These reports can help you verify necessary information. Pay close attention, though, because it doesn’t guarantee that the company is a good investment.
Be sure to watch out for potential scams and if you believe you are receiving fraudulent investment information, contact the SEC or your state securities regulator.