Office of Financial Institutions
OFFICE OF FINANCIAL INSTITUTIONS WARNS AGAINST SLIPPERY INVESTMENTS
FRANKFORT, Ky. (Jan. 16, 2007) – Although oil and gas prices are no longer at the high point they reached this summer, fraudulent oil and gas deals remain a favorite ploy of con artists nationwide, according to the Office of Financial Institutions (OFI), Kentucky’s securities regulator.
“Securities investments offering profit participation in oil and gas ventures can be legitimate for those who understand and can afford the risk,” said OFI Executive Director Cordell Lawrence. “But too often we are seeing questionable and even outright fraudulent energy deals aggressively promoted to the public.”
Many oil and gas investments tend to be interstate in nature. Those deals that are fraudulent may take advantage of this setup because there is less chance of an investor dropping by a well site or company headquarters. Even when the underlying project is legitimate, any revenues realized can be absorbed by high sales commissions paid to the promoter and dubious or inflated “expenses” skimmed off by the managing partner.
Businesses raising money by soliciting investors must comply with Kentucky’s securities laws. Scam artists tend to target individual victims and make an unsolicited contact, usually with a phone call, offering a “great” business opportunity. Lawrence said to beware of e-mails and telephone calls claiming things such as: “The risks are minimal;” it is a “can’t miss” opportunity; it is a “private deal open only to a few,” or you have to “act fast.”
To help investors determine whether an offer is legitimate, OFI has developed a new “Oil and Gas Investor Checklist.” This simple form can be filled out during a telephone conversation with an investment promoter. It is designed to help investors know what questions to ask, as recommended by OFI’s national membership organization, the North American Securities Administrators Association (NASAA).
OFI along with NASAA issued an alert to investors who may be considering oil and gas opportunities. 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.
Half of the court or administrative orders issued in Kentucky during the past two years regarding securities have involved oil and gas companies making fraudulent offers to Kentucky residents.
“Most oil and gas fraud victims don’t realize they have been swindled until after the money is gone,” said Lawrence. “As with any investment, we ask that people investigate before they invest and call our office.”
Lawrence says an investor should do three things before buying into any limited partnership in energy or any other industry: independently research the background of the promoters, get a clear explanation of the deal in writing and carefully read all the fine print.
OFI can verify whether an individual and/or company is licensed to sell securities in Kentucky, and whether he or she has a history of disciplinary action. To ask about a security or to file a complaint, call (502) 573-3390 or toll free (800) 223-2579. To print copies of OFI’s “Oil and Gas Investor Checklist,” visit www.kfi.ky.gov.