Opportunistic scam artists can be as slick as the oil spill

By Michelle Singletary
Sunday, June 13, 2010

The magnitude of the BP spill really hit me once I starting seeing front-page photos of oil- soaked birds. One poor thing looked like a Hollywood- inspired alien or a prehistoric creature.

How can you not wonder: What will it take to clean up the mess?

BP Chairman Carl-Henric Svanberg told shareholders on June 4 that the response to the disaster in the Gulf of Mexico is the company's top priority.

"The task is by no means complete, and we have a long way to go," he said. "This is a tough job."

Svanberg went on to say, "We will also continue to apply all of the necessary resources to the aftermath, both in the cleanup operation and in remediation and payment of legitimate claims."

Those words, and the sad images of oil-stained waterways, beaches and wildlife, are helping some scam artists take advantage of investors who themselves are looking to make money as a result of the gushing crude that has been leaking since the Deepwater Horizon drilling rig exploded on April 20.

With the stock market still doing its crazy up-and-down thing, people are desperately looking for anything that will produce higher-than-average returns. But that desperation is just what slick con artists are counting on. Every disaster brings them out, and this one is no exception.

The Securities and Exchange Commission and the Financial Industry Regulatory Authority have issued an investor alert about scams designed to exploit the BP spill.

"The sad thing is people haven't heard the warnings enough, because these scams continue to happen," said John Gannon, FINRA's senior vice president for investor education. "Today, it's the BP oil spill; before, it was Hurricane Katrina. The cover story changes, but the scam is basically the same."

In particular, the SEC and FINRA are warning investors about the classic "pump-and-dump" practice. In this scheme, company officials, promoters and/or fraudsters will use blogs, e-mail or message boards to pump up the noise on a certain stock that typically is selling on the OTC Bulletin Board or Pink OTC Markets, formerly known as Pink Sheets. Both are electronic quotation systems that provide pricing and financial information for stocks sold over the counter.

In the case of the BP spill, a firm may falsely claim it has a new technology to stop the spill or has a contract to help with the cleanup.

Gullible investors then buy the stock, creating demand and driving up the price. Gannon said when the promoters think the stock has hit its peak, they sell off their shares. Once the promoters stop hyping the stock, demand goes down -- along with the price. The promoters win. Naive investors lose.

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