Headlines Deliver Poor Investment Strategies
~ By Gerald Rome, Acting Colorado Securities Commissioner ~
Hydraulic fracturing, also known as “fracking,” is credited with facilitating record levels of oil and natural gas production here in Colorado, and many other states. It is also controversial, grabbing headlines, both locally and nationally. But scam artists also read the headlines. Often, they will use a highly publicized news item that features a booming industry, like fracking, to lure potential investors and make their false promises sound legitimate. A few years back when the headlines emphasized $4 a gallon gas and oil at $145 a barrel, we opened dozens of investigations involving suspect oil and gas investments. With fracking, we expect to see the same. After all, who can ever forget Jed Clampett discovering oil on his swampland in the TV series, Beverly Hillbillies.
Before you consider an oil and gas investment, watch out for these red flags and take these steps to protect yourself.
- Unsolicited Calls or Materials. Be careful if you receive unsolicited investment materials. Simply ignoring this investment-related junk mail is likely in your best interest. If somebody calls to follow up regarding the materials, simply tell them “thank you” and promptly hang up the phone. Hanging up quickly is crucial since con artists often use scripted sales pitches to keep you on the phone.
- Limited Opportunities. Promoters will often try to make you feel like the “big opportunity” they are selling is scarce and that you need to hand over your money before your chance slips away. It’s paramount that you resist this pressure and take some time to investigate before sending any money.
High Rates of Return. Scam artists love to tell you about the high returns you will receive, while downplaying the risk. Compare the promised returns with current returns on well-known stock indexes to see if the promised return is unusually high.
- Tips or Secrets. A promoter may try to tell you that the information they are giving you is a tip or secret in an effort to discourage you from consulting with somebody that you trust. If this happens, stop listening and leave or hang up the phone.
- Can’t Miss Wells. Every investment has some degree of risk, so you should be skeptical of any oil and gas investment that is pitched as being completely safe. Scam artists will spend a lot of time telling you about how safe the investment is and how the returns are guaranteed.
- Independently Confirm. Next, you should independently confirm the information you receive. A simple internet search may reveal the scam, but be sure to confirm the information with an independent source. Don’t necessarily trust a company’s website.
- Consult A Trusted Party. Remember, tips or secrets are not to be trusted. Reach out to a financial adviser or attorney and ask what they think about the investment.
- Contact a Regulator. Finally, don’t hesitate to contact a securities regulator about an investment. We can tell you if the person is licensed or if the investment is registered with us. The Colorado Division of Securities can be reached at 303-894-2320.