FINRA has issued an Investor Alert warning investors to beware of potential investment scams touting stocks and other investments promising huge financial gains in the wake of Hurricane Florence.
The Investor Alert, Beware of Stock Fraud in the Wake of Hurricane Florence, explains how investors can spot and protect themselves from investment scams associated with the clean-up or rebuilding of devastated areas.
When a natural disaster strikes, it’s not uncommon for scammers to rush in. In addition to charity frauds, we often see investment scammers try to exploit a variety of hurricane-related opportunities,” said Gerri Walsh, FINRA’s Senior Vice President of Investor Education. “Investors may become the targets of unsolicited emails, texts, phone calls, messaging apps and social media communications touting high returns, lucrative contracts, cutting-edge technology or other claims tied to prospering in the aftermath of Hurricane Florence.
While some of these opportunities and claims might be legitimate, many others could be scams,” Walsh added.
The most frequent types of scams tout the stocks of companies that purport to be associated with clean-up and rebuilding efforts. These promotions often trumpet supposed breakthroughs in science and technology to address current and future flood-related issues, such as contamination.
The Alert describes some of the hallmarks of fraudulent pitches, including:
- price targets or predictions of exponential growth;
- use of facts from respected news sources to bolster claims of a price run-up;
- mentions of contracts or affiliations with federal agencies or large well-known companies;
- the depiction of standard corporate developments as major events;
- statements about how much easier it is for low-priced stocks to skyrocket in value in comparison to higher-priced stocks; and
- pressure to invest immediately.
To avoid potential scams, investors should take these steps to make an informed decision about these financial opportunities:
- Investigate before you invest. Never rely solely on information received in an unsolicited email, text message, or cold call from an “analyst” or “account executive.”
- 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.
- Determine where the stock trades. Most unsolicited stock recommendations involve stocks that can’t meet the listing requirements of the Nasdaq Stock Market, the New York Stock Exchange or other U.S. stock exchanges.