Securities Lawyer Blog

The Financial Industry Regulatory Authority (FINRA) warned investors earlier this week that green is not always good.

FINRA was established to ensure that investors are protected and the markets maintain integrity. This time, FINRA's focus is protecting the public from big promises made by companies claiming to be involved in renewable and alternative green energy investments that in fact won't bring returns.

In the new alert, Save Your Greenbacks --- Don't Fall for Green Energy , FINRA helps investors by informing them about how these green scams are often carried out. Using social media vehicles such as tweeting and texts as well as webinars and faxes these scams attempt to secure investors using what FINRA calls "very aggressive, optimistic and potentially false and misleading statements that create unwarranted demand for shares of a small, thinly traded company."

The alerts goes on to describe the activities surrounding green investment scams as "a classic 'pump and dump' fraud where con artists behind the scheme then sell off their shares, leaving investors with worthless stock. Fraudsters are also using green investing as a hook for Ponzi schemes, where a scammer uses incoming funds from new investors to pay purported returns to earlier stage investors."

This is all to be expected perhaps. While there are many companies working hard to rise to preeminence in the green and renewables arena, the opening of a new industry also provides opportunity for dishonest plays for investment.

The alert provides information to investors as to how to research companies prior to investing and signs that could indicate potential scams.

As noted by John Gannon, FINRA Senior Vice President for Investor Education "right now there are a lot of legitimate stories in the news about green energy initiatives, and con artists want to leverage people's interest in green energy to make a quick buck at investors' expense. There is a lot of interest in companies that claim to provide green energy, but we issued this Alert to remind investors to be vigilant about avoiding investment scams, no matter how they are packaged."

Investors need to be certain of the source of investment information, particularly those that are unsolicited as well as the basis for promises of large returns. FINRA provides one example in which scam artists claimed that a particular solar stock was set for a huge gain and another in which a company was claimed to be poised for huge returns from green patents.

Investors have also been approached in a recent alleged Ponzi scheme to cash in all their traditional investments to buy into a company's green initiatives.

Some green companies may have great potential from an investment standpoint, but it is important that investors educate themselves prior to making investments in this or any sector.

Related Web Resources

To learn more about investment research, visit the investors area on FINRA's website.

Earlier this week, the United States Supreme Court granted certiorari in Morrison v. National Australia Bank Ltd. (08-1191), a case involving a question of transnational securities and the application of US securities fraud laws.

The case was brought by four Australian shareholders against National Australia Bank and HomeSide Lending, which formerly was its mortgage unit located in Florida.

The appeal will determine when the United States' securities fraud laws apply in transnational securities dealings. The high court will review the appellate court's upholding of a dismissal of the lawsuit. The intermediate appellate court determined that the United States courts had no jurisdiction in the matter, since the alleged fraud at the center of the allegations occurred outside the United States.

A few basic facts. National Australia Bank purchased HomeSide Lending in 1998 for $1.22 billion and several years later announced write-downs amounting to $2.2 billion. After this occurred, the bank's stock value fell 13% in Australia and several HomeSide executives resigned.

The bank eventually reported to the SEC that it had applied incorrect interest assumptions in valuing the mortgages over time. They miscalculated the amount of time it would take for borrowers to pay back loans, and thus the fees associated with those loans. Later, HomeSide was sold to Washington Mutual and picked up in 2008 by JPMorgan Chase when it purchased Wamu's assets.

Specifically, the questions presented in the case are as follows:

1) Do anti-fraud provisions of U.S. securities laws extend to transnational frauds when (a) foreign-based parent company conducted substantial business in United States, its American Depository Receipts were traded on New York Stock Exchange, and its financial statements were filed with Securities and Exchange Commission, and (b) claims arose from massive accounting fraud perpetrated by American citizens at parent company's Florida-based subsidiary and were merely reported from overseas in parent company's financial statements?

(2) Should this court, which has never addressed issue of whether subject matter jurisdiction may extend to claims involving transnational securities fraud, set forth policy to resolve three-way conflict among circuits (i.e., District of Columbia Circuit versus Second, Fifth, and Seventh Circuits versus Third, Eighth, and Ninth Circuits)?

(3) Should Second Circuit have adopted SEC's proposed standard for determining proper exercise of subject matter jurisdiction in transnational securities fraud cases, as set forth in SEC's amicus brief submitted at request of Second Circuit, and should Second Circuit have adopted SEC's finding that subject matter jurisdiction exists here due to "material and substantial conduct in furtherance of" securities fraud that occurred in United States?

In their effort to have the Supreme Court accept the case, the shareholders' attorneys argued that the appellate courts are divided as to when the US has jurisdiction over transactional securities fraud. They advocated that the anti-fraud provisions of the securities laws apply to transnational securities frauds even when overseas investors suffer the resulting financial losses. This they argued is proper if the domestic conduct was material to the scheme's success and a substantial part of the alleged fraud.

The Securities and Exchange Commission represented by the U.S. Justice Department, argued that the lower courts had correctly dismissed the lawsuit and urged the Supreme Court to reject the appeal. The government advocated that a private plaintiff should be required to demonstrate a direct causal link between injury and the component of the scheme involved in the United States.

The case will be heard and decided in 2010.

Related Web Resources

For more information on the USSC case docket for the Morrison case, click here.