From the February 2010 issue of Investment Advisor • Subscribe!

Beware Green Investment Scams

Sidebar to Robert Keane's column "Adding ESG to Asset Allocation"

Green energy offers opportunities for new jobs and investments. Unfortunately, the green energy field has also attracted individuals with less than honorable intentions.

On January 6, FINRA issued an alert warning investors to be wary of green energy investments that promise large gains from investing in companies purportedly involved in developing or producing alternative, renewable or waste energy products. The new investor alert, Save Your Greenbacks--Don't Fall for Green Energy Scams, explains how these frauds typically work. Con artists are using everything from tweets and text messages to Webinars and faxes to lure investors with very aggressive, optimistic, and potentially false and misleading statements that create unwarranted demand for shares of small, thinly traded companies, the SRO said. This is a classic "pump and dump" fraud, according to FINRA, where con artists behind the scheme then sell off their shares, leaving investors with worthless stock. Fraudsters are also using green investing as a hook for Ponzi schemes, where a scammer uses incoming funds from new investors to pay purported returns to earlier stage investors.

FINRA is urging investors to ignore unsolicited investment recommendations and to question the source of any investment information. Investors should also be wary of investments that claim to be the next big thing and promise exponential returns. Another red flag for a green scheme is a hard sell that pushes investors to go "all in" on a new investment initiative. In a recently alleged Ponzi scheme, investors were encouraged to liquidate their traditional investments, such as retirement plans, stocks, bonds, and mutual funds, and to borrow against their home or business, so that they could invest in one company's "green" initiatives. However, according to a complaint filed in federal court, the company did not generate any income from which the promised returns--ranging from 17% to "hundreds of percents" annually--could be made.

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