The Securities and Exchange Commission, in an unusual press release, has warned investors of offers to put their money into coal development schemes.
Taking advantage of the public's awareness of the energy crisis, promoters have been selling partnership and fractional interests in coal-related ventures, the SEC said.
Because these are mostly private offerings with limited numbers of investors participating, the promoters do not have to follow the detailed disclosure requirements demanded of larger, publicly held companies under the securities laws.
"Investors should be particularly cautious since they do not have the protections afforded by the registration provisions," the SEC said.
Noting "public allegations of impropriety concerning various aspects of these coal investments," the SEC said it has initiated a formal investigation of certain of these investment promotions.
An SEC spokesman noted that many of these investment deals are legitimate tax shelter plans. Investment in coal mining syndicates became popular last year after the tax reform legislation removed shelter benefits from oil and gas investments.
Recently, the Internal Revenue Service issued final regulations that would take some of the shelter away from investments in coal mining syndicates, too.
The IRS said that so-called advance royalties against future sale of coal can not be deducted from the investors' income taxes in advance.
The IRS said the royalties can be taken by as they are paid or accrued. They can also be written off when the coal on which the royalties are paid is sold.
To guard against "fraudulent offerings of coal investments," the SEC suggests that investors:
Consult with an independent professional who understands the coal business.
Be particularly wary of unsolicited phone calls.