Biomass Magazine - June 2010

Page 62

BUSINESS more than 2.6 million shares and then transfer a substantial portion of the proceeds into a bank account held jointly with Rivera. Whether Ponzi, pump-and-dump or other, before an investor is lured into a bad investment, Gannon says it’s likely that multiple red flags will be present that should be carefully analyzed.

Look for Red Flags Investors should always raise an eyebrow when the initial investment opportunity discovers the potential investor, rather than

vice-versa, Gannon says. “Especially when the individual or organization presenting the opportunity is unknown or fairly unknown to the investor,â€? he says. “Ask yourself ‌ why would somebody you don’t know bring you a promise of the next-greatest investment out there? Why are they targeting you with this pitch? If it’s so good, why aren’t they investing themselves?â€? If the company offering an investment is a public company, one should confirm that they are registered with the SEC. “Learn information about the company from that filing,â€? Gannon says. “Many of the stocks that are used to

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62 BIOMASS MAGAZINE 6|2010

defraud people haven’t been in business that long. A lot of them have been created through a reverse merger, which is when a company will be in a certain business line and then suddenly, because an industry such as alternative energy is hot, change their name and complete a reverse merger resulting in the company being in a totally different business line. That is a red flag that tells you the investment could be a scam.� Most unsolicited recommendations involve stocks that cannot meet the listing requirements of a major national exchange such as the NASDAQ Stock Market or the NYSE. Rather, they are quoted on the OTC (over-thecounter) Bulletin Board or in the Pink Sheets, where there are no minimum financial and other quantitative standards that have to be met by the company, and no obligations to file annual or quarterly reports to publicly disclose information. Yet another red flag is when a vast amount of wealth is promised to an investor in a short time. “It’s a very common tactic,� Gannon says. “One solar panel stock scam touted a 200 percent gain, and another scam claimed the company’s stock ‘soared 500 percent in one week.’ When you see pitches like that step back, because it’s highly unusual.� By examining information on a company’s financial statements Gannon says it’s relatively easy to determine if a company has revenue and how much, and whether it’s making a profit. Never rely on information you received in unsolicited faxes, e-mails, text messages or blog posts. It could be a paid promoter or con artist, especially online where a single person can use multiple aliases to create the illusion of widespread interest, Gannon says.

Good Intentions, Bad Assumptions Even if a new company’s intentions aren’t exactly to pull the wool over an investor’s eyes, one must proceed with caution. Energy expert Ronald Rapier, chief technology officer for bioenergy holding company Merica International, says he thinks assumptions (relevant to the biofuels industry) regarding the cost of biomass is one of the worst some companies are making today. “I see many companies claiming they will produce cheap biofuel, but when you take a closer look they are basing

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