For unscrupulous stock promoters, the ascent of clean and renewable forms of energy opens a window for investment scams.

U.S. securities regulators are beginning to look at companies engaged in renewable energy, which involves generating electricity or producing fuels from sources such as the sun, the wind or switchgrass. As record-high prices for fossil fuels such as crude oil force the U.S. to rethink its reliance on traditional energy, alternative sources are getting promoted as a solution - with possible risks for investors.

"The fraudsters follow the headlines, so they would be greatly remiss if they didn't package their frauds to follow the interest in renewable energy," said Denise Voigt Crawford, the Texas securities commissioner. "I am certain that, unfortunately, we're going to see new frauds that focus on these types of energy pitches."

Crawford said that her office already has some investigations under way.

The opportunities for fraud go hand in hand with the potential size of the industry. Encompassing everything from solar panels and wind turbines to technology that turns prairie grass into motor fuel, the renewable-energy market is growing in leaps and bounds. The U.S. used 7% more energy from biomass such as ethanol, a fuel distilled from corn, in 2007 than a year earlier, according to the U.S. Energy Information Administration. The amount of wind energy consumed jumped by 21%.

Warnings In Small Packages

The newest warning signs come in small packages. In April, the U.S. Securities and Exchange Commission suspended trading for two weeks in shares of The Alternative Energy Technology Center Inc., which are listed on the Pink Sheets under the symbol AETE, curbing the market for stock in the developer of ethanol made from so-called biomass. The SEC cited "the accuracy and adequacy of statements in the company's press releases regarding its rights to certain technology."

The Houston company doesn't post its telephone number on its Web site and couldn't be reached for comment. Its Web site as recently as last week included pictures of big industrial processing facilities, along with links to online brokerage firms. Now, the site has been all but disbanded, labeled "temporarily unavailable."

The prevalence of renewable energy varies by region, with solar powerimportant in sunshine states such as Nevada and wind power big in Texas. One result is that some states may be more fertile ground for fraudsters, since their location adds an element of legitimacy that can be used to entice out-of-state investors.

"People that actually live in those states have the advantage of being able to take a ride over and see what they're doing," said John Polise, the head of the SEC's microcap fraud working group. "People outside of the area are not going to have that advantage and should be even more careful in making sure they do due diligence."

Polise declined to say whether the SEC has any pending investigations into renewable energy companies that are considered "microcap" - those with market capitalizations of less than $75 million.

Tilting At Windmills

Companies of all sizes are riding a wave of demand for renewables. General Electric Co. (GE), the biggest maker of wind turbines, and SunPower Corp. (SPWR), a maker of solar panels, have been accepting big orders as customers seek alternative sources of energy. Earlier this month, Mesa Power LLP, owned by Texas billionaire T. Boone Pickens, placed the biggest-ever order for GE wind turbines to be located at a single site.

Some investors have already found out the hard way that not every company has such bright prospects. In July 2006, the SEC filed civil charges against U.S. Wind Farming, an Illinois company that purported to place windmills on farmers' land and sell the resulting wind-generated electricity to utility companies. The SEC said that U.S. Wind Farming didn't have the ability to install wind turbines and didn't, as it had publicized, have relationships with the U.S. Agriculture Department or the U.S. Energy Department.

When a U.S. court ruled against U.S. Wind Farming months later, the court found it liable to return $452,284 to investors, but reduced the amount to $38,487 due to the company's inability to repay the money. The case illustrated one of the common features of small-cap stock frauds: The extent of the damage may not be clear until after the fact.

"I'm surprised that with the renewable energy stuff, the scams haven's surfaced," said Fred Joseph, the securities commissioner for Colorado, where there are currently no pending investigations. "Maybe it's happening right now. We'll find out when the investors don't get their checks."