The SEC recently put out a press release Natural Disasters and Investment Scams – Investor Alert. In the aftermath of natural disasters like hurricanes Helene and Milton, the U.S. Securities and Exchange Commission (SEC) is urging people to be cautious of investment scams. These scams prey on the vulnerabilities of victims who might be struggling financially after a disaster.
Disaster as Opportunity for Fraudsters
Disasters like floods, wildfires, and oil spills, along with hurricanes, create a prime hunting ground for fraudsters. They take advantage of the desperation and confusion people experience after a disaster to lure them into fake investment opportunities. These scams can target anyone, but fraudsters may specifically target individuals receiving insurance payouts or other compensation for recovery efforts.
How the Scams Work
The schemes come in various forms, but some common tactics include:
- Fake Cleanup and Repair Investments: Scammers may approach you with “investment opportunities” in companies supposedly involved in rebuilding efforts. These companies are likely fictitious, and your money will disappear.
- “Feel-Good” Investments with Hidden Motives: Some scams may twist the narrative, claiming your investment will not only make you money but also benefit those affected by the disaster. This is a manipulative ploy to gain your trust.
- Pump-and-Dump Schemes: Fraudsters might promote stocks in companies falsely claimed to be profiting heavily from reconstruction. They then inflate the stock price by misleading others and sell their own shares at the artificially high price before the bubble bursts, leaving you holding worthless stock (see our FAQ on pump-and-dump schemes).
Fraudsters’ Tactics to Reach You
Be wary of unsolicited contact about investments, especially via email, social media, phone calls, or text messages. Fraudsters use these channels to reach a wide audience quickly. They may even lie about being affiliated with government agencies or reputable companies to appear legitimate.
Staying Safe: Skepticism is Your Armor
Always be skeptical if someone approaches you with an investment opportunity after a disaster. Here are some steps to protect yourself:
- Ask Questions: Don’t just listen. Ask the person proposing the investment if they are licensed and if the investment itself is registered with the SEC or a relevant state regulator.
- Verify Information: Use Investor.gov’s free search tool to check the background of anyone trying to sell you an investment. This tool can reveal their licensing and registration status, helping you weed out scammers.
- Beware of Guaranteed High Returns: Remember, if it sounds too good to be true, it probably is. Investments promising high returns with little to no risk are classic red flags for scams.
Protecting Your Finances During Recovery
Before making any investment decisions, carefully assess your overall financial situation. If you received a lump sum payment for disaster recovery, prioritize your immediate needs and long-term security. By being aware of these tactics and taking precautions, you can protect yourself from investment scams and navigate your financial recovery with confidence.
