There is no doubt that oil and gas investments can be a very lucrative endeavor. While there are a good deal of legitimate oil and gas investment opportunities available to savvy investors, there are also a number of scams in the oil and gas field of investment. Being aware that these types of scams exist, and knowing the potential warning signs of investment and securities fraud and what measures you can take to help protect yourself from being taken advantage of, could save you from significant investment losses.
Commonly Used Scam Techniques
- Selling Away Bogus Private Securities. When an investor is offered an investment product by a broker that falls outside of the normal array of investment products offered by the brokerage firm, it is referred to as an investment in private securities. The offer could sound great, such as a stake in an oil and gas limited partnership or a privately held company. However, from time to time, unscrupulous brokers might be offering an “investment” that isn’t real, in an attempt to defraud the investor.
- Encouraging Investment In A Non-Existent Partnership. In more recent years, this investment scam has become more common. A broker will encourage an investor to get involved with an out-of-state oil and gas or drilling partnership, when the truth of the matter is that the partnership is fraudulent and doesn’t actually exist. On paper, the venture appears legitimate, but in reality the investors are getting soaked.
- Unsolicited Phone Calls/Internet Pitches. Some scams involve contacting potential investors by telephone and pitching the potential investor a deal that can’t be refused. The caller is trained to utilize high-pressure sales tactics, employ techniques to hype up the deal that is being offered, and to make promises that will never be delivered upon.
How To Avoid Being A Victim of Oil and Gas Investment Scams
- Don’t Be Afraid To Ask Questions And Don’t Be Too Trusting If The Answers Aren’t To Your Satisfaction. You, as a prospective investor, are the potential client in an oil and gas investment opportunity, and as a potential client, you have the right to ask questions about the proposed investment. If you start asking hard questions, and the answers you get from the broker don’t make sense, leave you feeling suspicious or the salesperson tries to avoid answering them, the opportunity may not be a legitimate one.
- Dig For Proof Of Legitimacy. Ask a lot of questions directed to determine the legitimacy of the investment offer.
- Ask the salesperson if the investment is registered with the state securities commission in the state in which you reside, and then make the effort to contact it to verify the registration claims made by the salesperson. Having this information, and then being able to verify it, adds credibility to the proposed investment.
- Ask the salesperson about the company and details about the investment’s operations. For example, who owns the company, or who are the partners? What are these individuals’ experience in oil and gas investments? What are their qualifications? Knowing more about the company enables you to do research on your own, which can help you make a well informed decision as to the legitimacy of the proposed investment.
- Ask the salesperson about his or her qualifications and their compensation or commission structure. Knowing this may give you a better idea of who is trying to sell you the investment and what his or her financial motivation is.