The SEC's Office of Investor Education and Advocacy is issuing this Investor Alert to alert investors, including individuals who may receive lump sum payouts from insurance companies and others as a result of damage from the California wildfires, to investment scams that may take advantage of the disaster.
Natural disasters such as wildfires, floods and hurricanes often give rise to investment scams. These scams can take many forms, including promoters touting companies purportedly involved in cleanup and recovery efforts that falsely guarantee high returns, and Ponzi schemes where new investors' money is used to pay money promised to earlier investors.
Some scams are circulated through email and social media, promising high returns for small, thinly-traded companies that supposedly will reap huge profits from cleanup and recovery efforts. For example, the SEC brought several enforcement actions against individuals and companies who made false and misleading statements about alleged business opportunities in light of the damage caused by Hurricane Katrina in 2005. Some of those cases involved pump-and-dump scams where fraudsters used fake "news" to pump up the stock price of small companies so they could sell shares they owned at artificially high prices. We also heard about fraudsters targeting individuals receiving compensation from insurance companies.
Individuals, including those receiving lump sum insurance payouts, should be extremely wary of potential investment scams related to the California wildfires.
Be Skeptical and Ask Questions
Be skeptical if you are approached by someone touting an investment opportunity. The first thing to do is to ask the person whether he or she is licensed with the SEC or with a state. Make sure the person is licensed and registered by doing a check through Investor.gov (just click the “Search the Database” button and then type in the person’s name).
Ask questions about the investment – and check out the answers with an unbiased source, such as the SEC or your state securities regulator. Please read our short publication called Ask Questions before making any investment decisions.
Finally, know that promises of fast and high profits, with little or no risk, are classic signs of fraud.
Take a close look at your entire financial situation before making any investment decision, especially if you are a recipient of a lump sum payment. Remember, your payment may have to help finance your recovery as well as last you and your family for a long time.
Below is a list of some resources that may help. If you are thinking about investing and have any questions, do not hesitate to call the SEC's Office of Investor Education and Advocacy at 800-732-0330, ask a question using this online form, or email us at Help@SEC.gov.
- Lump Sum Payouts: Questions You Should Ask Yourself Before You Invest.
- Affinity Fraud: For information about investment scams targeting particular groups, see our Investor Alert on Affinity Fraud.
- Ponzi Schemes: For information about Ponzi schemes, see Ponzi Schemes: Frequently Asked Questions.
- Ask Questions: For a list of questions you should ask when considering an investment, see Ask Questions: Questions You Should Ask about Your Investments. This publication is also available in Spanish.
The Office of Investor Education and Advocacy has provided this information as a service to investors. It is neither a legal interpretation nor a statement of SEC policy. If you have questions concerning the meaning or application of a particular law or rule, please consult with an attorney who specializes in securities law.