With new investor scams keeping pace with the meteoric rise in gold prices, FINRA put out a much-needed Investor Alert - "Gold" Stocks - Some Investments Mine Your Pocketbook.  The "gold-bug" has also spawned a generation of blogs, websites, YouTube videos and Tweets centered on investing in gold.  FINRA wants investors to recognize tell-tale signs of scams and questionable gold-related investments.  At the same time, FINRA wants to guide investors on seeking legitimate gold investments and how to invest in them.  

Gold Scams.   FINRA, in part, is concerned that these scams may center on inflated claims regarding the stocks of gold mining companies whose stock value is often based on gold reserves that are difficult to estimate, much less verify. Here are some examples: 

• The SEC took legal action against a mining company based in Florida for false press releases claiming that a mining project in Ecuador contained gold reserves worth more than $1 billion.

• Gold investments also may be touted in free lunch seminars and pushed by boiler room operations.  The SEC charged 6 individuals for running a recent Ponzi scheme that used investment seminars to bilk 3,000 investors throughout the U.S. and Canada out of $300 million.  Separately, the CFTC took 3 actions against precious metals firms, including charging a boiler room telemarketing firm that purportedly purchased more than $23 million of precious metals for their customers.

FINRA's Investor Alert.    The publication cautions investors to be on the lookout for any pitch for a gold investment that:

• claims to tie stock performance to the general rise in gold prices – a rise in gold prices does not guarantee a rise in the price of a gold company's stock;

• uses scare tactics such as the threat of inflation or an economic meltdown;

• makes speculative claims based on a new reserve's proximity to an existing reserve; or

• centers on a company that has changed its name or trading symbol to align it more closely with gold - e.g., one company that currently purports to engage in gold mining was originally incorporated to provide golfing opportunities on private courses to nonmembers.

Finally, "Gold" Stocks—Some Investments Mine Your Pocketbook forewarns investors about the market volatilty of legitimate investments tied to gold.  Being too heavily concentrated in gold investments can leave investors overly exposed and at risk of losing a substantial percentage of their money. 

For further details, and to access of copy of the publication, go to:   [FINRA News Release, 8/24/11]