The Securities and Exchange Commission is warning investors that the number of fraud cases related to private securities offerings for oil and gas ventures has spiked over the past few years and that working with an advisor doesn’t guarantee they won’t be scammed.
The SEC’s Office of Investor Education and Advocacy issued an investor alert Thursday, noting that while there were only a few fraud cases related to oil and gas ventures in 2005 and 2006, the number of SEC cases since then has averaged more than 20 per year.
The alert notes that working with a registered broker or advisor that is familiar with the oil and gas industry and not connected to the offering can help an investor analyze the investment and affords investors “certain legal protections,” but it’s not a “seal of approval” that nothing will go wrong.
Oil and gas offerings “present many investment risks,” the SEC alert notes, “and working with a registered individual is not a guarantee that the offering is a sound investment.” Investors should not only ask if the advisor has any prior history of selling oil and gas offerings, but also if those offerings failed, the vetting or due diligence process the advisor used for such offerings, and the risks of the particular investment the investor is considering.
The SEC warns investors to be particularly cautious if the broker or advisor has a relationship with the promoter of the venture, or otherwise has a personal stake in the transaction. “A promoter is the person promoting the offering and is usually the founder of the venture. Ask about any current or prior relationship with the promoter, the extent of their business together, and any personal incentive in the offering. These or similar questions should help alert you to any potential conflicts and biases that may exist in recommending the particular offering to you.”