Oil and Gas Investment Schemes

By: AARP Outreach & Service | Source: AARP.org | May 30, 2006

An Idaho man who lost both legs in an industrial accident was looking for a "safe" place to invest $20,000 he received in a liability settlement. A blind man in his 80s from Alabama hoped to raise money to care for his wife who had Alzheimer's disease. Both men were victims of a fraudulent oil production scheme that cost 52 investors more than $1.5 million.

Yes, gasoline prices have seen record highs but investing money on natural gas or oil well leases may mean your money goes down the drain. Energy shortages don't necessarily put money in your pocket. Dreams of being like Jed Clampett of TV's "Beverly Hillbillies" are wonderful dreams, but he owned the land the oil was on; he didn't invest in a well somewhere else.

Black Gold or Crude Hoax

Since the first oil gusher, people have sought to strike it rich through a variety of investments in oil and gas. But before you open a pipeline to your wallet, consider the fact that many oil investments are not on the level. Some oil ventures originate in boiler rooms - nothing more than bare offices with a few desks and telephones. Boiler room telemarketers are trained to use high pressure sales tactics. They follow a carefully scripted sales pitch that generate huge profits - profits for them, not you. These scammers often use headlines about high gas prices and instability in the Middle East to scare people into investing in their bogus product. In the end, the wells turn up dry or don't exist at all. Investors are left with nothing.

Check It Out

Before you open a pipeline to your wallet, consider the following warning signs:

• Beware of unsolicited oil and gas investment cold calls from telemarketers, e-mails and Internet ads.
• Avoid high-pressure sales tactics and language promoting "once in a lifetime" opportunities.
• Carefully read any written material provided. Make sure that what you are hearing from the promoter is consistent with what is in print.
• Before investing, call your state securities regulator to determine if the investment and the promoter are properly licensed and registered in your state. If they aren't, don't invest.

Take Action

To check on an investment offer or salesperson, or to file a complaint, contact your state securities regulator. You can find contact information for state regulators at the North American Securities Administrators Association web site (click "Contact Your Regulator").