The numbers are staggering: more than a dozen have died, more than 30,000 were rescued and at least 40,000 homes were damaged following recent, unprecedented flooding in southern Louisiana. Rebuilding the state’s devastated communities will take time, determination and a lot of money.
Unfortunately, some scammers see a golden opportunity to capitalize on tragedies by advertising “investment opportunities” they claim are lucratively linked to recovery efforts but, in reality, are unlikely to deliver any returns.
For instance, following the 2011 earthquake, tsunami and nuclear plant accident in Japan, one company issued a press release promoting its new radiation detectors, but public documents revealed the firm was in rough financial shape and that it had no manufacturing capabilities. In some cases, fraudsters attempt to create demand for shares of small, thinly-traded companies and, once demand and share prices rise, they sell off their stock—a classic “pump and dump” scheme.
Want to avoid falling prey to a possible shady investment scheme? FINRA has issued numerous investor alerts related to stock scams, including pump-and-dump schemes. Here are a few warning signs to look for:
Avoiding a post-disaster investment scam means embracing skepticism and educating yourself. To discern whether an advertised opportunity is legitimate, check the Securities and Exchange Commission’s EDGAR database to find the company’s public filings, if it has any. You can also do your homework on the person promoting the investment—legitimate financial professionals and their firms must be registered with the Financial Industry Regulatory Authority, the Securities and Exchange Commission or a state regulator (or a combination of all three). To check the background of a broker or investment adviser, use FINRA’s BrokerCheck search tool.
Learn more about disaster-related investment scams in this FINRA Investor Alert.