In September, the Financial Industry Regulatory Authority (FINRA) issued a fraud alert for survivors of hurricanes Harvey and Irma. The self-regulatory organization noted that hurricane victims may be targeted by unsolicited calls, emails ,or other communications about investments that take advantage of hurricane-related opportunities.
Common Post-Hurricane Fraud Schemes
FINRA’s fraud alert highlighted common stock and investment schemes, like crowdfunding, that pitch clean-up and rebuilding outfits or scientific and technological breakthroughs that claim to remediate current and future flood-related damage.
FINRA warned investors about responding to unsolicited offers that promise rapid and exponential growth. Scammers might also claim to have contracts or affiliations with federal agencies like FEMA or well-known disaster-relief companies. Scammers may also use facts gleaned from media sources to support claims of stock increases, or use high-pressure tactics to encourage immediate investment.
How to Avoid Potential Scams
The FINRA alert included advice to victims of natural disasters on how to avoid becoming the victims of a potential financial scam.
First, it is crucial to identify the caller messenger. Many companies and individuals that promote stock are insiders or are paid to do so, so be sure to request written statements to see if the fine print indicates that cash payments are made for disseminating information about the company.
Investors should also do their own due diligence and never rely on unsolicited information provided by someone claiming to be an analyst or account executive. The FINRA BrokerCheck® system can be used to verify the registration status and obtain other information about investment advisers and firms.
Additionally, it is important to determine where the stock trades, since most unsolicited offers are for stocks that do not meet the listing requirements of major U.S. stock exchanges like the New York Stock Exchange (NYSE). Unsolicited stocks are frequently quoted on an over-the-counter (OTC) platform such as the OTC Bulletin Board (OTCBB).
The registered exchanges have specific listing requirements. Unlike the OTC platforms, the registered exchanges require that companies have a minimum amount of net assets and a minimum number of shareholders. Before investing in any stock, be sure to read a company’s SEC filings or other financial reports to verify any information presented to you.
As residents of Houston clean up in the wake of Hurricane Harvey, it is crucial to be on the lookout for fraudsters who swoop in “on the heels of disaster,” as FINRA noted in its alert. Remember: use common sense and remain vigilant, and if you have been the target of fraud, you should consult with experienced financial fraud and complex litigation attorneys.