Don't Be The SuckerAmid all of the truly groundbreaking new technologies, innovative companies, and fresh-minded thinking surrounding renewable energy, organic agriculture, distributed generation, and other green memes lurk ugly, but familiar beasts — the penny stock operator and the private placement promoters. With a penchant for press releases and the skillful use of all the appropriate buzz words, these charlatans are not only making off with some ill-gotten booty from unsophisticated investors, they are diverting much needed investment dollars that could otherwise be going to the more deserving ventures.

It is amazing that people fall for these things a mere six years after the meltdown of the "new economy" internet debacle. However, if you know how to look, they are not that hard to spot. Here are some tips to protect yourself:

1) No listing… no dice. Qualifying for a listing on the NASDAQ is not that hard for a company, and qualifying on the AMEX is even easier. Profits are not a requirement and neither is revenue, for that matter. This is a good rule, by the way. Some industries, especially in technology and medicine, require many years before a product is ready for market. It only takes about $40,000 in listing fees, $4 million in assets, and about 400 investors. If a company has what it takes to survive in the public markets, such as a solid management team, an interesting product or technology, and a reasonable business plan, it is also not that hard to find a reputable underwriter to help you meet these requirements. Usually, a pink sheet stock is on the pink sheets because the reputable underwriters took a look at the prospects and said "no way". This alone should clue you in to the highly speculative nature of the enterprise.

2) Is it news, or fluff? If you look at the company's web site, or widespread personal finance sites like Google Finance, you can usually spot the "Company News" link. In many cases, what looks like news is only a press release. Sometimes, it is more cleverly disguised, but it still amounts to fluff. If the source is Business Wire, PR Newswire, CSR Wire (which is for the SRI crowd), or something similar, then this "news" was written by someone with an agenda. It's not the wire's fault. That is what they do. Even if the source seems more real, see if the reporter is critical in the analysis. Many local papers are anxious to write about local "success stories".

3) …and you are? If the first two reasons have not scared you off, take a look at the management team. First off, there should be more than one, and they should all have different last names. You would think that investors would not be so gullible, but I was pitched just last week by someone hoping to fund a "blank check company" with one CEO and one director (the same person). What is likely to happen is that the "officers" will form a compensation committee (of one) and decide on a grossly exhorbitant salary for the management team. Second, it is reasonable to expect that company leaders have proven themselves to be good stewards of public money.

4) The Woody Allen Rule. Seriously, unless you are yourself a multi-bazillionaire, ask yourself why people would want you to join their country club. Like Woody Allen, you should resolve that any club that would have you as a member is not a club you want to belong to. The very best IPO's and private placements are reserved for Wall Street's best clients. This unfortunate fact is conspiratorial and wrong, but a fact nonetheless. It is a good rule to follow for ANY investment, whether real estate, "fine art" Dali prints, collectibles, or stocks and other securities.

5) … and you are (part 2)? A lot of companies that failed to ignite investor interest in other fields, are just changing their names and starting anew. Take, for example, Western Wind Energy, a company that was, until a few months ago, a mining firm. Another example is Newgen Technologies, also a former mining company, now on its third name. Neither company ever produced a nickel's worth of revenue.

Some of these scams have legitimate sounding names and even more legitimate business plans, but watch your wallet. As always, be diversified, keep investment costs low, maximize your company's 401(k), and be systematic in your saving. You will do just fine.

Mark Brandon is the owner of First Sustainable, a Registered Investment Advisory catering to socially responsible investors. His column appears in Green Options on Mondays.

Skeptics abound about the whole concept of socially responsible investing. Some of them have merit. Others are just plain silly.

Statement: SRI does not perform as well as traditional investing
Status: Mostly False
Explanation: As more people become of aware of investing responsibly, a lot of naysayers point out that social portfolios and funds have underperformed market indexes over the last few years. This much is mostly true, but it is not that simple. Following the tech bust and subsequent recession, the market enjoyed a cyclical upturn in 2003, which continues to the present day.

In this cycle, as in most early-stage cycles, the stellar performers have been commodities-based companies, extractive companies, heavy industrial companies, and of course, oil companies. Many socially screened portfolios have not participated with these companies because they tend to rely on socially troubling practices. Commodity players (some, not all) are in developing countries paying exploitative wages. Heavy industry pollutes. Oil companies are a root cause of global warming emissions. But, since overall market indexes incorporate these companies, SRI indexes have trailed.

However, with an over-weighting toward technology and health care stocks, SRI portfolios outperformed for seven years prior to the last upturn. Most of the run-up in those cyclical stocks occurred in 2003. So, any study of the matter that does not take multiple cycles into account is just plain incomplete. The best scholarship on the topic, represented by the Social Investment Forum’s Moskowitz Prize, shows that there is no real difference between screened and non-screened performance over the last 25 years. The verdict is that SRI neither underperforms, nor overperforms traditional investing on a financial return basis.

Statement: SRI is more risky.
Status: False
Explanation: Adherents to the Dow Theory claim that by narrowing your universe of stocks through social screening, you increase your risk by decreasing diversification. The problem with that notion is that, by definition, managing a portfolio requires narrowing your universe of stocks. If that is too much work or too expensive, just get an index fund and be done with it.

Statement: Companies do not pay attention to social investors.
Status: Mostly False
Explanation: Skeptics point to alcohol, tobacco, and gambling companies, long the target of social divestment strategies, and show that the social divestment movement has not really made them change their ways. This is probably true. Divestment probably does not work when a socially repugnant enterprise is the core business. In these cases, activists can only hope that they behave more responsibly, such as has happened with cigarette settlements, better labeling, etc.

Social investment activism has been very effective with companies that have repugnant practices in the everyday pursuit of their not-especially-repugnant businesses. For example, Nike (NYSE:NKE) was once shamed as a pariah of sweat shop labor. Today, that company is one of the most progressive companies on the issue. Social investors recently persuaded large publicly traded financial companies such as Goldman Sachs (NYSE:GS) and Lehman Brothers (NYSE:LEH) to pledge to clean up their project financing guidelines. I could go on and on. If the company's core business is not socially IRRESPONSIBLE in and of itself, SRI can have a huge effect.

Statement: National divestment campaigns do not work
Status: Jury is still out
Explanation: Social investors like to take credit for forcing companies to divest from Apartheid-era South Africa. The economic isolation was one reason that the white leadership eventually caved. I, personally, think that SRI contributed to Apartheid’s downfall, but realize that there were several other issues that contributed as well. Alas, this is a subject for another post, or even another Green Options blogger.

However, anecdotally at least, one can look at occasions of forced divestment through government regulation to see how this works. Companies have been forced to divest from countries with oppressive political regimes for decades. Forced divestment from Cuba, Iraq, Iran, North Korea, Libya, the former USSR, and its allies frankly has a mixed record. Economic isolation definitely caused some communist regimes to crumble. In other cases (Cuba, Libya, Iran), sanctions have not had much effect on destabilizing regimes. And, in others (Iraq, North Korea), it could be argued that sanctions have caused suffering only among the population while actually strengthening the targeted regimes. Having an enemy to rally against while at the same time exploiting black markets created by sanctions helped Saddam hold on to power, and is probably doing the same for Kim Jong Il.

The current campaign to divest from Sudan is a current hot-button issue. In my opinion, this is a case where national divestment could work. Oil revenues are giving the genocidal government its power. Foreign oil companies make those revenues possible. Make no mistake. The ethnic cleansing going on Darfur is all about claiming oil-rich land. If it were just about claiming political power (as in Cuba, or North Korea), I would be more skeptical that financial investors could change the minds of maniacs.

Mark Brandon is the founder of First Sustainable, a Registered Investment Advisory catering to socially responsible investors. His weekly column appears in Green Options on Mondays.