The Financial Industry Regulatory Authority (FINRA) issued a warning to investors about potential investment scams that promise financial gains in the aftermath of Hurricane Florence. This is a common occurrence that often targets financially vulnerable people.
“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.”
These types of scams typically center around selling stocks of companies claiming to be part of the clean-up and rebuilding efforts following the natural disaster. In many cases, the promoters of these scams talk about supposed brand new technology that will set new standards in current and future recovery efforts. Some of the most common talking points in these pitches include:
- Pressure to invest right away;
- Low-priced stocks are more likely to jump in value;
- Framing standard corporate developments as massive changes;
- Mentioning affiliations or contracts with well-known companies or government agencies;
- Using facts from well-known news sources to back up claims; and
- Making predictions of exponential grown or extremely high price targets.
In order to help potential targets recognize and avoid a potential scam, FINRA outlined a number of steps people can follow to protect themselves:
- 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.
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