The SEC's Office of Investor Education and Advocacy is issuing this updated Investor Alert to help educate investors, including individuals who may receive lump sum payments from insurance companies and others following the recent historic rainfall and flooding in and around Louisiana, 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 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. 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 the recent historic rainfall and flooding.
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. Check the registration status and background of anyone recommending or selling an investment using the SEC’s Investment Adviser Public Disclosure (IAPD) database, which is available on Investor.gov. Contact your state securities regulator for more information. 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. 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 received 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 have any questions about investing, call the SEC's Office of Investor Education and Advocacy at 1-800-732-0330, or ask a question using this online form.
- Lump Sum Payouts: For information about investing wisely after receiving a lump sum payout, see Lump Sum Payouts: Questions You Should Ask Yourself before You Invest a Dime.
- Affinity Fraud: For information about investment scams targeting particular groups, see Investor Alert: Affinity Fraud.
- Ponzi Schemes: For information about Ponzi schemes, see Ponzi Schemes: Frequently Asked Questions.
- Saving and Investing Basics: For general information about saving and investing, see Saving and Investing: a Roadmap to Your Financial Security through Saving and Investing. Esta publicación también está disponible en Español.
- Ask Questions: For a list of questions you should ask when considering an investment, see Ask Questions: Questions You Should Ask about Your Investments. Esta publicación también está disponible en Español.
- Investor.gov: SEC's educational website for retail investors.
- MyMoney.gov: U.S. government's website dedicated to teaching the basics about managing your money.
The Office of Investor Education and Advocacy has provided this information as a service to investors. It is neither a legal interpretation nor a statement of SEC policy. If you have questions concerning the meaning or application of a particular law or rule, please consult with an attorney who specializes in securities law.