There are legitimate oil and gas investments, but there are also deals riddled with problems. Scammers prey on hot trends and opportunities. Unfortunately, it is often difficult to identify the scams from the genuine investments. The North American Securities Administrators Association (NASAA) released a warning about oil and gas investment fraud. Scam artists have been using the fluctuating oil prices to their benefit. According to the NASAA, when there is opportunity for money to be made, scammers follow in the shadows to take advantage of the situation.
There are various types of oil and gas investments, which the NASAA lists as follows:
- Limited partnership interests
- Ownership of fractional undivided lease interests
- General partnerships
How Do You Know If It’s Fraud?
Scam artists know how to structure deals so it is difficult to identify that they are actually investment schemes. A typical oil and gas scam might have a limited partnership in one state and a physical location in another. These unscrupulous individuals will then offer the investments to people in states other than where the limited partnership was created and where operation is located. This discourages investors from ever visiting the oil field or company headquarters.
Do Your Research First
If someone has approached you to invest in an oil and gas venture, be cautious. You need to do your homework before investing any money. You should look into the following:
- Research the background of the investment representative and the company offering the deal. You can check with the state securities commission to see if any claims have been filed.
- Find out if the security is registered. You can contact the state securities commission to confirm registration information and to obtain additional details about the offering. If the security is supposedly exempt, confirm that information too.
- Review the details of the lease. The NASAA recommends you find out when the property was acquired, name of who is selling the lease, cost of the lease, and any relationship between lessor and operator. You should also find out if the lease is in default.