Fraud and Abuse in the Energy Industry: Be Careful with Words

• In Event: Fraud in Mergers and Acquisitions, the Energy Industry, and Extra-Statutory Sanctions

Abstract

One fraud scheme which occurs frequently is the microcap fraud technique. The typical scam involves individuals buying up shares of a lightly-traded penny stock, and then manipulating the market to make the stock appear to be actively traded. Called pump and dump frauds, fraudsters hype the stock through e-mail marketing, watch the stock increase in value, and then dump their shares. The article reviews several recent fraud schemes that the SEC brought complaints against companies (e.g., Treaty Energy Corporation, Nostra Energy, Inc., and Houston American Energy). Coverage includes examples of misleading revenue reports, SEC’s attacks to stop the techniques, court procedures re class action lawsuits, and red flags to stop these scams.

Authors

• Donald Larry Crumbley, Louisiana State University - Baton Rouge

• Christine Crawford Cheng, Louisiana State University - Baton Rouge