By Gilberto Delgado, Jr.
Many people are tempted by an opportunity to “strike it rich” or are willing to invest in something likely or even guaranteed to give returns that will be “too good to pass up.” These “once in a lifetime opportunities” are often associated with oil and gas investments that end up being fraudulent. Since 2005, the Securities and Exchange Commission (SEC) has averaged more than 20 fraud cases per year related to private securities offerings for oil and gas ventures.
Just recently, the SEC charged two men from Tennessee and an accomplice in Florida with allegedly defrauding investors by promising high returns from an oil drilling investment. The three men generated a $15 million scheme by recruiting salesmen who offered a stake in companies using oil recovery techniques. Investors were promised profits of 15 to 55 percent per year for decades. Now, what could possibly go wrong with promised returns like that?
To begin, these men were not registered to sell investments and diverted two thirds of the money raised in order to pay themselves. A minority of the funds were actually used for oil production in order to create an illusion for people who wanted to see activity in-person. These men were well-equipped with brochures, advertisements, and more in order to appear legitimate and to lure investors into believing in this “get rich quick” method. In addition to fraud charges, these men are facing criminal charges brought by the U.S. Attorney’s Office for the Southern District of Georgia.
The SEC has issued an investor alert regarding private oil and gas offerings which can be viewed here. The alert contains helpful information and tips regarding the risks and suitability of private oil and gas offerings as well as a list of common red flags. Another helpful tool provided by FINRA is BrokerCheck.com which allows you to find out whether someone is registered with FINRA or the SEC. BrokerCheck.com will generate a report which reflects any complaints customers have had about this specific broker and the result. You may also ask your broker for the “due diligence report”, which summarizes a broker’s review of the investment.
Most importantly, as with any investment, it is important to be realistic, especially when you hear about opportunities with returns as high as 55 percent. If it sounds too good to be true, it usually is. It is always better to be safe than sorry with your investments because after all, it is your hard-earned money that you would like to see grow, not disappear.