While the oil spill in the Gulf of Mexico is posing a serious ecological threat to the region, it has the potential to create serious economic threats as well. The Securities and Exchanges Commission (SEC) has issued a warning to investors to be wary of potential “pump and dump schemes” that involve “scams promising financial gains from investments in companies that claim to be involved in cleanup operations.”
According to the SEC, “pump and dump schemes” usually involve the hyping of a company’s stock (typically microcap companies) through false or misleading statements to the marketplace. After the stock has been pumped, fraudsters are able to make huge profits by dumping their then inflated stocks into the market. Once this happens, the price typically falls and investors lose their money.
With the combined cost of short-term clean-up for the spill and the longer-term damage on the fishing and tourism industries associated with the gulf, investors are being warned to investigate any company that claims to have been awarded clean-up contracts through either BP or the U.S. government. According to the SEC release, “While some of the companies touting their role in the cleanup may be legitimate, others could be bogus operations that are only looking to clean out unsuspecting investors.”
On May 25, the SEC temporarily suspended trading in shares of ACT Clean Technologies Inc., of Huntington Beach, CA because of questions concerning the accuracy of publicly disseminated information regarding BP’s purported expression of interest in using the company’s “oil fluidizer technology” in clean-up operations in the gulf as well as reported results of field tests using the technology in the Gulf of Mexico. According to the Wall Street Journal, shares of ACT were trading at less than a penny before April 26, when they suddenly soared to 6½ cents before regulators stepped in.
Additionally, the SEC advised investors to investigate any press releases or unsolicited emails that include claims about the company’s involvement in the clean-up efforts in the gulf. Finally, investors were advised to exercise some skepticism as scammers are very adept at making their pitches appear real.