Predators exploit desperation; they smell fear and they sense opportunity. Unscrupulous stock promoters have honed these predatory instincts into profiteering skills. They see every crisis as a chance for profit. It happens time and again.
• Shortly after the terrorist attacks of September 11, dozens of little-known companies sought to claim a niche in the homeland defense industry. Many of these businesses had no experience in homeland defense, and some had no operations, revenues or assets. Still, promoters touted these companies and repeatedly invoked the code words “homeland defense.”
• Soon after the anthrax attacks that followed September 11, scores of tiny companies declared that they had developed products or services that could be used to detect, treat or prevent anthrax and other diseases. Again, most of these companies lacked track records that would support those claims. Several were exposed as fraudulent schemes. Promoters, undeterred, encouraged investors to by shares of these obscure companies – repeatedly uttering the code word “anthrax.”
• There are myriad other examples. Small public companies with few resources and little credibility have sought to appeal to investors by claiming that they were developing treatments for HIV/AIDS treatment, alternative energy sources, or cancer cures. Regrettably, most of these promises have proven hollow – but that has not prevented promoters from extolling the virtues of virtually worthless companies.
Hurricane Katrina and the devastation to the Gulf Coast already have given birth to similarly scurrilous stock promotions. Opportunistic fraudsters are beginning to circulate e-mail and faxes touting oil and gas “plays” and pumping other businesses that might profit from the overwhelming losses to life and damage to property. These efforts are likely to increase in the coming days, using faxes, e-mail and boiler room telephone operators.
Regulators are advising the public to be alert to these scams. The SEC warns that many of these pitches are little more than repackaged schemes designed to exploit the latest disaster and suffering. The North American Securities Administrators Association (NASAA) asks investors to be patient and cautious.
We join in that advice. Investors should be wary of any company or promoter that urges them to act quickly by purchasing shares of a company that purportedly will benefit from a crisis. As with any investment, it is important to investigate the company thoroughly, determine its history, assess its management team, and review its financial condition. Investments should be based upon demonstrated substance and proven performance, not meaningless promises and groundless predictions.
We will continue to investigate dubious promotions and provide investigative reports. You can help us keep our readers informed. If you receive any e-mails or faxes touting companies that are “destined” to benefit from the losses on the Gulf Coast, please forward them to us.
In the meantime, be wary of promoters and, as always, before you invest, investigate.
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