How To Spot A Green Scam

By Ryan Barnes | November 13, 2007 AAA

They're back. The scams and schemes that plagued the dotcom boom have popped up wearing a shiny new mask - a green mask.

A recent announcement from the Financial Industry Regulatory Authority (FINRA) has alerted investors to the newest target in the scamming world - alternative energy and other "green investing" initiatives. (To read FINRA's full warning, see "Save Your Energy and Money - Don't Fall for Energy Stock Scams".)

The arrival of a new crop of scams is right on cue, just as investor interest is peaking in a new set of technologies and a very hot sector. Those of us who have followed the market for many years can remember - but not fondly - the endless internet-related pump & dump scams of the late 1990s, where a few wisely chosen buzzwords could ignite just enough interest to make a few people part with their money before the truth came to light.

Green is Just a Word
Even though today's markets have more regulation than at any other period in the past, scammers can still write up false presentation materials and slap them onto OTC stocks, lifeless limited partnership interests, or even private shell companies. With so much of today's business (and information) being transacted on the internet, the physical distance between overeager investors and those who wish to prey on them is literally wider than ever. Making matters worse is the fact that anyone with a few bucks and a few hours to spare can send a million spam emails, text messages or phone calls. (To learn more about these scams, see Wham Bam Micro-Cap Scam and Online Investment Scam Tutorial.)

Because nobody wants to get duped, here are a few tips and tricks to keep in mind for those looking into green investing opportunities:

An Email is Only a Starting Point
Although I would caution against using unsolicited emails at all in your research tasks, at least keep them to just starting points for ideas - don't let them be definitive statements. Any legitimate investment being touted in an email should give you links to sources of real information such as SEC statements, business wire releases (from sources such as Reuters and Associated Press), and company websites.

Don't fall for bombastic statements such as, "This winner will triple your investment in just six months!" As with any other investment, take your time and perform your own due diligence. No investment that is solid will run away from you in a week or two's time. (To get started on your on investigation, see Small Cap Research Can Have Big Impact.)

Pay Attention to the Narrator
Anybody who is pitching you an investment should be able to list their credentials. Most likely the person should be a registered investment professional with the SEC or FINRA. Any registered securities broker can have his or her background verified. If you're in any way cautious about an investment opportunity, you should start by checking credentials.

Beware of any language that paints too rosy a picture. We all want to earn outsized returns, but any publicly-traded company that is in it for the long haul will temper its statements and projections, and this is usually in the best interest of shareholders. Stocks that carry outsized growth projections tend to be volatile, and that could drive away valuable long-term and institutional investors.

A Word of Caution on Green Investing
Going green is both an investing idea and a personal philosophy. For people like myself, now is an exciting time because both ideals can blend into one investment philosophy. However, there will be companies that lose out, and they will be found in all sectors, even the exciting ones. That is the beauty of inspiring competition in areas we want to see improvement in, areas like environmental sustainability and alternative energy. So, keep in mind that anyone offering guarantees is violating one of the two oldest rules in investing:

1) If it sounds too good to be true, it probably is.
2) If someone found a sure-fire way to make money in the markets, they would never tell anyone about it.

No Shortage of the Real Thing
Now that green investing is hitting its mainstream stride, investors have an increasing menu of choices. There are hundreds of small-cap stocks directly engaged in exciting businesses like alternative energy, clean air technology and biofuels. There are also hundreds, if not thousands of mid-cap and large-cap companies devoting plenty of capital and manpower toward similar efforts. A couple of the large players include Archer Daniels Midland (NYSE:ADM) and solar company SunPower (Nasdaq:SPWR).

In short, there's no need to scour the pink sheets for solid green investments. There are plenty of high-growth opportunities to be found in fully-regulated equities that trade on national exchanges.

Parting Thoughts
The safest way to "go green" with your investing is to stick with regulated, publicly traded companies that have real products, services and intellectual property in the areas most interesting to you. There are more than enough of those available, so narrow your search to the devil we know. Even the biggest stocks and funds offer no guarantees, but at least they have regulators watching our backs.

Looking to cook up a market-stomping stock portfolio? Check out our FREE report "7 Ingredients to Market Beating Stocks" and get started right now!

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