The explosion of interest in alternative, renewable or waste-energy products has spawned a wave of green-energy scammers.Don’t let your clients fall prey to their schemes. Warn them that shiny green wrappers are often just lures to invest in illegitimate investments or Ponzi deals.
According to FINRA, green-energy investment scammers use faxes, e-mail, text messages, Webinars, infomercials, tweets and blog or message-board posts to ensnare investors. They rely on aggressive, optimistic and potentially false and misleading statements that create unwarranted demand for shares of small, thinly traded companies. Once they amass enough client interest, they sell off their shares, leaving people with a worthless stock.
“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 to make a quick buck at investors’ expense,” says John Gannon, FINRA senior vice president for Investor Education.
For instance, one solar panel stock was touted as “set for a 200 percent gain.” A different stock in a China-based wind-power company was extolled as a “one in a million” opportunity that could quickly climb to “51 times its current level.”
Other scammers use green investing to ensnare clients in Ponzi schemes. In one recently filed case, the SEC alleged that promoters lured 300 investors into a $30-million Ponzi scheme touting a “carbon-negative” housing development in rural Tennessee. Investors were falsely promised returns ranging from 17 percent to “hundreds of percent” annually.
FINRA says clients should watch for these red flags:
- Unsolicited messages that tout very low-priced stocks
- Aggressive sales tactics, including pressure to invest immediately
- Entreaties to liquidate existing assets to go “all in” on a new green-energy venture
- Claims of exponential price growth over a short time frame
- Use of facts or actions from respected sources to bolster credibility
- Companies that have only “working prototypes” rather than actual products or proven technologies
- Pressure to invest immediately
- Unverifiable claims of enormous energy efficiency