The Gulf of Mexico oil spill is attracting another kind of potential disaster: investment fraud.
Federal officials are warning investors to be wary of so-called "pump and dump" stock schemes tied to the BP oil spill.
"We're never surprised by these scams," said John Gannon, the Financial Industry Regulatory Authority's senior vice president for investor education. He said similar frauds surfaced after Hurricane Katrina and the anthrax letter scares.
"You need a healthy level of skepticism about a company you've never heard of having a solution to an environmental crisis," Gannon said.
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In a pump-and-dump scheme, a company ups its stock price by hyping its connection to a disaster, typically products or services that can aid in recovery or rebuilding. As new investors pour in, company officials cash out by dumping their inflated shares, which then drives down the price and leaves investors with over-inflated stock.
Last week, a California company was the first to be reprimanded by the SEC for questionable tactics in touting its ties to oil cleanup efforts.
ACT Clean Technologies Inc., a Huntington Beach-based oil cleanup company, was ordered to cease trading its shares (ticker symbol ACLH) on the so-called Pink Sheets stock exchange for 10 days, through June 8.
The SEC said it had questions about the "accuracy and adequacy" of statements by company officials that appeared on ACT's website, in press releases and during a radio talk show. Specifically, the SEC questioned the company's assertions that BP was interested in the "oil fluidizer technology" licensed to ACT subsidiary American Petroleum Solutions Inc. and about test results purportedly showing the technology could be useful in the gulf cleanup.
On May 3, the company issued a press release that said, "We are already in contact with industry personnel to provide our technology to clean the hulls of ships that will be covered with oil from the BP/Transocean oil slick before they enter the Mississippi River shipping lanes."
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