FINRA Warns Investors to Beware of Gold Stock Scams

Gold scams may make inflated claims about the stocks of gold mining companies whose stock value is often based on gold reserves that are difficult to estimate, much less verify. For example, according to FINRA, the Securities and Exchange Commission 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 may also be touted in free lunch seminars and pushed by what FINRA calls "boiler room operations." The SEC has already charged six individuals for running a recent Ponzi scheme that used investment seminars to bilk 3,000 American and Canadian investors out of $300 million.

In addition, the Commodity Futures Trading Commission has taken three actions against precious metals firms, including charging a boiler room telemarketing firm that purportedly bought more than $23 million of precious metals for customers.

"Con artists are using the run-up in the price of gold as a hook to part investors from their money," said Gerri Walsh, FINRA's vice president for investor education, in a statement. "Investors should think twice before investing in any gold investment promising exponential returns, or any company that claims it is a buyout target for other mining companies."

FINRA's investor alert cautions investors to watch out for gold investment pitches that:

• Claim to tie stock performance to the general rise in gold prices, because a rise in gold prices does not guarantee a rise in the price of a gold company's stock;
• Use scare tactics such as the threat of inflation or an economic meltdown;
• Make speculative claims based on a new reserve's proximity to an existing reserve; 
• Center on a company that has changed its name or trading symbol to align it more closely with gold.