In the wake of Hurricane Matthew, the Securities and Exchange Commission (SEC) issued this Investor Alert to help educate investors, including individuals who may receive lump sum payouts from insurance companies and others as a result of hurricane damage, about investment fraud.
Hurricanes, floods, oil spills, and other disasters often give rise to investment scams. These scams can take many forms, including promoters touting companies purportedly involved in cleanup and repair efforts, trading programs that falsely guarantee high returns, and classic Ponzi schemes where new investors' money is used to pay money promised to earlier investors.
Some scams are circulated through spam email, promising high returns for small, thinly traded companies that supposedly will reap huge profits from recovery and cleanup efforts. For example, the SEC brought a number of enforcement actions against individuals and companies who made false and misleading statements about alleged business opportunities in light of the damage caused by Hurricane Katrina in 2005.
Some of those cases involved pump-and-dump scams where fraudsters use fake "news" to pump up the stock price of small companies so they can sell shares they own at artificially high prices. We also heard about fraudsters targeting individuals receiving compensation from insurance companies. Individuals, including those receiving lump sum insurance payouts, should be extremely wary of potential investment scams related to Hurricane Matthew.
Be Skeptical and Ask Questions
One of the best ways to avoid investment fraud is to ask questions. Be skeptical if you are approached by somebody touting an investment opportunity. Ask that person whether he or she is licensed and whether the investment they are promoting is registered with the SEC or with a state. Check out their answers with an unbiased source, such as the SEC
or your state securities regulator
. Know that promises of fast and high profits, with little or no risk, are classic signs of fraud. Our short publication called Ask Questions
discusses many of the other questions you should ask of anyone who wants you to make an investment. Please read Ask Questions
before making any investment decisions.
Take a close look at your entire financial situation before making any investment decision, especially if you are a recipient of a lump sum payment. Remember, your payment may have to last you and your family for a long time. Below is a list of some online resources that may help. If you are thinking about investing and have any questions, do not hesitate to call the SEC's Office of Investor Education and Advocacy at 1-800-732-0330, or ask a question using this online form
Investor.gov: The SEC's educational website for retail investors.
MyMoney.gov: The U.S. government's website dedicated to teaching the basics about managing your money.