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Slippery Oil and Gas Deals Await Unwary Investors

January 12, 2007

• Read More Scam Alerts ...

Although oil prices have fallen since reaching an all-time high last summer, fraudulent oil and gas deals remain a favorite ploy of con artists nationwide, according to the North American Securities Administrators Association (NASAA), the membership organization of state securities regulators.

"Securities investments offering profit participation in oil and gas ventures can be legitimate for those who understand and can afford the risk," said Joseph P. Borg, NASAA's President and Director of the Alabama Securities Commission.

"But too often we are seeing doubtful and even outright fraudulent energy deals aggressively promoted to the public."

Skyrocketing prices of oil and natural gas in recent years have made a variety of traditional and alternative energy projects attractive to investors, Borg said. Most of these investments are highly risky and not appropriate for smaller investors.

And even where the underlying project is legitimate, any revenues realized can be absorbed by high sales commissions paid to the promoter and dubious 'expenses' skimmed off by the managing partner.

Most scam deals, say regulators, are devastatingly simple.

"The game isn't really high-level fraud," Borg said. "It's usually more a total misuse of proceeds -- take an investors' money and buy yourself a fancy car or boat."

NASAA has issued an alert to investors who may be considering oil and gas opportunities. Because these investments scams tend to be interstate in nature, NASAA also has coordinated a network of representatives from state securities agencies to share information on oil and gas investment schemes.

Over the past two years, state securities regulators have opened more than 260 cases involving oil and gas-related schemes and have issued 122 cease and desist orders against promoters.

Scamsters tend to target individual victims and make an unsolicited contact, usually with a phone call, offering a great business opportunity. Most oil and gas fraud victims don't realize they have been swindled until after the money is gone.

"An investor should do three things before buying into any investment in energy or any other industry. First, independently research the background of the promoters; second, get a clear explanation of the deal in writing; and third, carefully read all the fine print."

Businesses raising money by soliciting investors must comply with state or provincial securities laws. Scam artists usually tell prospective victims that they are licensed and their investment is registered -- and they can be quite convincing.

"But unless you can afford to lose your money, don't take them at their word. Find out for sure," Borg said. "As with any investment, we ask that investors investigate before they invest and contact their state or provincial securities regulator with any questions or concerns

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