As we mentioned last week, natural disasters like Hurricane Sandy have the potential to bring out both the best and the worst in people. Individuals who take advantage of investors are a classic example of the latter.
Unfortunately, the incidence of disaster-related investment fraud is well documented. In the wake of Hurricane Katrina, fraudsters preyed on disaster victims as well as those who wanted to help them. Common frauds included Ponzi schemes, affinity fraud, and email scams touting thinly traded stocks that promised to reap high returns from recovery and cleanup efforts.
With this in mind, the Securities and Exchange Commission has issued an Investor Alert for investment fraud related to Hurricane Sandy. It specifically cautions individuals receiving compensation from insurance companies to exercise extra caution, warning that scammers will often target those receiving lump sums. The SEC also notes that “pump and dump” scams, where fraudsters use fake "news" to pump up the stock price of small companies so they can sell their shares at inflated prices, are particularly prevalent following disasters.
Although the risk is higher following Hurricane Sandy, the advice is the same. Be skeptical and do your research. Investment opportunities that promise high returns with little or no risk are always red flags for fraud. Investors should also carefully research every investment opportunity, particularly unsolicited offers made through email or social media. Information provided by the individual touting the investment opportunity should also not be taken at face value but verified through the many information sources now available which allow you to check on the past history of the promoters through internet research, including with the SEC or your local securities regulator.
For more information about vetting a potential investment opportunity. please contact me, Dan Brecher, or the Scarinci Hollenbeck attorney with whom you work.