The Financial Industry Regulatory Authority (FINRA), the largest independent regulator of securities firms doing business in the United States, recently issued an alert which warned potential investors to be on the lookout for scams being presented as green investment opportunities.

We recently covered green scams from a consumer’s perspective. The environmental movement has grown much bigger than just eco-friendly products and conservationism. Vast sums of money are being spent on the development and research of new technologies geared towards providing a green lifestyle; with the proliferation of these new companies, investment in green energy initiatives and clean technologies has become an ever-expanding trend. While the majority of these start-ups are legitimate and trustworthy, as with any trend the scammers have emerged looking to make easy money off their victim’s limited knowledge of something name-dropped regularly in all forms of media.

In a news release, John Gannon, Senior Vice President for Investor Education at FINRA explained why the alert was issued, “Right now there are a lot of legitimate stories in the news about green energy initiatives, and con artists want to leverage people's interest in green energy to make a quick buck at investors' expense.”

The fraudsters often target the elderly or those who are closing in on retirement. Recent scams have been particularly cruel, encouraging the victims to liquidate their retirement plans and home equity while promising impossible annual returns up to the hundreds of percents. It takes a callous human being to wipe out the cushion that someone in their golden years has worked a lifetime to save. Passing it off as some kind of ecological act of sainthood just adds insult to injury. When these scammers pitch their green investments the only green which actually interest them is whatever they can extract from their victims.

These scams can come in many different forms. The classic pump-and-dumps scams involve the con artists using aggressive sales techniques, misleading promises and outright falsehoods to increase the demand and raise the price of a small, barely-traded company before dumping the worthless stock for a big personal gain.

The new technologies being touted in these investments are in no way guaranteed to provide the type of power required to be a viable energy source. While the debate rages on as to whether these new energy-producers are worth the risk, scammers are out inflating the stocks of these companies with ridiculous promises and looking to cash in once they have conned enough investors.

The FINRA alert didn’t name the scammers, but pointed out several specific incidences of outrageously touted, and dubious, stocks being pedaled to potential investors. One was a solar panel company that guaranteed the investments were set for a 200% gain. A blog dedicated to investments pushed a company with a hydrogen-based solution with suggestions that federal energy research would grow the company significantly and claims of a 500% one-week rise in the company’s stock. A wind power company based in China sold itself as a million-to-one opportunity and indicated the stocks could quickly climb to 51 times their current level.

Besides the pump-and-dumps, Ponzi schemes are another popular tactic used in these green investment scams. The Securities and Exchange Commission recently brought a civil complaint against two companies they charge lured 300 investors into contributing to a $30 million green Ponzi scheme. The investments were supposed to be for “carbon negative” community to be built in Tennessee and a substitute for charcoal developed from organic waste. According to the SEC, these green sales pitches were laden with bogus claims and promised enormous returns. The SEC noted as of yet, these operations haven’t netted much in the way of any profit and any returns paid have been funded almost exclusively from newer investors’ contributions.

Here are some red flags that you might be dealing with an investment scam provided in the FINRA alert:

– Unsolicited communications such as faxes, tweets, emails, or well-placed opinions in blogs or message boards, especially in relation to low-priced stocks.

– Webinars (Internet seminars) and in-person seminars that use aggressive tactics and encourage investors to go “all in” by liquidating their current savings.

– Predictions of swift and exponential growth or price targets.

– Unverifiable claims of energy efficiency.

– Pressure for immediate investment.

– Products that claim “working prototypes” without an actual real counterpart on the market or products in development.

–The use of facts from the mainstream media to bolster the apparent “need” of the service or product being pitched or the mention of associations and governments looking to utilize whatever service the product is providing.

They go on to offer these tips to help avoid being scammed.

– Look at the source. Did it come unsolicited? Never solely trust an email, fax or blog post for information about a potential investment opportunity. It’s not difficult for these guys to make all kinds of unsubstantiated claims about their company or product.

– Be skeptical. Scammers are good at scamming people. They are very well-practiced and can be quite convincing. They use websites and videos of high quality production. Don’t get too excited initially, stay cool; especially when faced with promises of immediate payoffs or when dealing with start-ups or products in development.

– Where do they trade? Many stocks that are sold through these unsolicited contacts don’t meet listing requirements for the major national exchanges, NASDAQ and the New York Stock Exchange. If these stocks are traded on the OTC Bulletin Board or in the Pink Sheets, they do not have financial standards and requirements needed to be exchanged with the big boys. Many of these stocks are traded infrequently and are subject to drastic jumps both up and down in price, which might make them difficult to sell later.

– Read the company’s SEC filings. You can check the SEC’s EDGAR database to see if the company has filed and then check it out. A link is provided at the end of the article.

– Research the person selling the stock or investment. A reputable and legit salesperson will be licensed or their firm must be registered with FINRA, the SEC or a state securities regulator depending on the type of business being conducted. Links for all three are provided at the end of the article.

Green living might be the wave of the future, and investing in its promise might pay big dividends in the end. Before getting too caught up in where things are going, remember the past. Con artists have been scamming their victims for as long as history’s been recorded, probably longer. Don’t let your dreams of tomorrow ruin your financial stability today.


To read a potential company’s filings on the SEC’s EDGAR database

To research the salesperson:

FINRA BrokerCheck

SEC's Investment Adviser Public Disclosure Website

Find your state securities regulator

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