Insurance and financial advisors should advise clients to be wary of oil-patch scams – and should promote these deals only after doing careful due diligence themselves. According to the North American Securities Administrators Association (NASAA), state regulators have opened more than 260 investigations in the last two years and have issued 122 cease and desist orders against oil and gas promoters.
“Securities investments offering profit participation in oil and gas ventures can be legitimate for those who understand and can afford the risk,” says Joseph P. Borg, NASAA’s president and director of the Alabama Securities Commission. “But too often we are seeing doubtful and even outright fraudulent energy deals aggressively promoted to the public.”
Escalating energy prices in recent years have made energy investment opportunities attractive to the public. Problem is many such deals are not appropriate for smaller investors. And even when the underlying project is sound, high sales commissions and dubious expenses can offset evenues, says NASAA.