FINRA Alert: Don't Fall for Energy Stock Scams

Editor's note: This is a special alert from FINRA -- Financial Industry Regulatory Authority. It has been republished for TheStreet.com readers.

If the traffic on fax machines and in email boxes across the nation is any indication, life is pretty easy. You can get a college degree without setting foot in a classroom, travel to popular vacation destinations for next to nothing, or make a quick and handsome profit investing in oil, gas, or alternative energy stocks.

A combination of factors -- including global warming, a ravenous worldwide hunger for energy, rising gasoline and fuel oil prices, and instability in the Middle East -- has sparked investor interest in energy and alternative energy stocks. But these same factors also appear to have fueled a rash of energy-related stock scams.

There are legitimate and not-so-legitimate ways to invest in companies that produce energy. We are issuing this alert to warn investors about fax, email and even cell phone text message scams that promise high returns in exchange for little risk -- and to provide information on how to invest wisely in this or any other sector.

Energy Scams Start With a Blast of Hot Air

Like so many other fraudulent schemes, energy stock scams typically involve the touting of a small unknown company, using a combination of baseless price predictions, misrepresentations and hyperbole. The goal of these scams is not to make you money, but to pump up the price of the stock through false and misleading statements that create unwarranted demand for the company's shares. The con artists behind the scam can then sell off their shares, leaving investors with worthless stock.

"It is easy to conclude that everyone should have an alternative energy stock in their portfolio," reads one fax. "Put [company name] on your radar screen today, as it is about to take off!"

Tempting?

Well, get a magnifying glass and read the small print at the bottom of the page. "The securities discussed herein are for high-risk individuals only and not for the general public."

And, "[faxing company's name] was paid $500,000 for the distribution of this report."

In a spam message, another outfit trumpets that a certain Texas energy firm has "teamed up with China's $23 billion oil monopoly," and huge returns are in store for those with the wisdom and foresight to invest "right now!"

"If you have $5,000 in the S&P 500 and you ride it out for the rest of the year, you'll walk away with $5,700," the spam reads. "But put that $5,000 into this Texas dynamo and you'll stuff your pockets with $26,500 in as soon as four months."

Not all energy investment pitches are as over-the-top as this, and some are legitimate. We can't help you decide whether or how to invest in this sector, but we can help you sort the wheat from the chaff where unsolicited fax or email investment pitches are concerned.

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