FINRA, SEC Warn Investors against Oil Spill Scams

In addition to economic and environmental threats, the recent oil spill in the Gulf of Mexico poses a threat to investors, according to an investment alert from regulators.

The Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC) today warned that investors should watch for scams promising financial gains from investments in companies that claim that be involved in cleanup operations in the Gulf. 

The regulators noted that millions of dollars are being spent daily on short-term cleanup of the spill, which began in April with a blowout at an oil-drilling platform off the coast of Louisiana. The alert warned investors about potential scams exploiting the oil spill and related cleanup efforts. “While some of the companies touting their role in the cleanup may be legitimate, others could be bogus operations that are only looking to clean out unsuspecting investors,” the alert said.

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The SEC recently suspended trading in shares of ACT Clean Technologies Inc., of Huntington Beach, California, because of questions about the accuracy and adequacy of publicly disseminated information about ACT’s cleanup technology.

Warning Signs

The investor alert said some companies might issue issue press releases, or send unsolicited faxes or spam emails that might include:

  • claims to have products or technologies that are effective in remediating oil spills or restoring the eco-system;
  • mention of contracts or expected contracts with BP that would aid the cleanup effort;
  • claims that the company is providing technical assistance or expertise to BP or to U.S. government agencies such as the Coast Guard or the Environmental Protection Agency;
  • predictions of rapid, exponential sales growth;
  • pressure to invest immediately.

For more information about how to avoid getting scammed, investors can view the Investor Alert.  

NY Insurance Brokers File Suit to Stop Compensation Transparency Regulation

A coalition of New York brokers recently filed legal action to prevent the New York Insurance Department from implementing a regulation requiring insurance producers to disclose compensation from insurance companies to their clients.

The Independent Insurance Agents & Brokers of New York (IIABNY) and the Council of Insurance Brokers of Greater New York (CIBGNY) filed the action in New York State Supreme Court. The groups said the regulation is “burdensome and confusing,” according to a news release from the IIAB.

Insurance Regulation 194, which takes effect on January 1, 2011, requires producers to disclose compensation from insurance companies to their clients—not only commissions but also other compensation such as gifts. Furthermore, the client can request more detailed information, such as what compensation the broker would have received from an alternate insurance policy.

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IIABNY and CIBGNY asserted that such a regulation is unnecessary and would not be in the best interests of either consumers or producers.

In their court action, known as an Article 78 proceeding, the groups are asking the court to annul all or parts of the regulation. Specifically, the groups said that the Insurance Department does not have authority under New York law to mandate compensation disclosure and that the regulation “represents an impermissible attempt to rewrite the Insurance Law on a subject as to which the Legislature has already specifically legislated.”

In addition to questioning the authority of the Insurance Department, the groups said parts of the regulation “impose massive and unwarranted costs of compliance on brokers so as to constitute an arbitrary exercise of regulatory power.” Furthermore, the groups said the regulation violates producers’ rights to due process and equal protection under the U.S. and New York State Constitutions.

IIABNY noted that the court proceedings might not conclude before the regulation’s scheduled effective date. In anticipation of that fact, the organization on May 13 sent the department a proposal for specific language that a producer could use for making required disclosure. Meanwhile, IIABNY and CIBGNY continue to pursue legal action.

 

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