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Archive Home Behind the Numbers® Edition |
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Volume
8 - No. 1 |
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In this edition of Staying
a Step Ahead of Stock Scams Boiler
Rooms Go Signs
You're Dealing With a Smooth Criminal Web Monitoring Firms: Far Reaching or Far-Fetched? Non-Compete Agreements: The Extra Step in Intellectual Property Protection Kessler's Corner: Investment Fraud
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Staying a Step Ahead of Stock Scams Imagine a normal day at the office. You've been hard at work all morning, and just as you're about to leave for lunch, the phone on your desk rings. You spend the next few minutes chatting with a friendly representative from A.P. Grogan, a capital venture firm that, according to the man on the phone, has the inside track on high-yield investments. He goes over the firm's sterling history, running down a laundry list of multi-million-dollar success stories. Plus, he tells you about a pharmaceutical company that is poised to make a huge splash on Wall Street in the very near future. You've never heard of the firm, but the opportunity sounds intriguing, so you ask for more information. The pitchman agrees to send a brochure to your office, and he gives you the firm's website address. With that, he says that he'll be in touch, and you go on with your day. A
week later, you've looked at the website and gone over the literature
that was sent through the mail. Everything
looks remarkably professional and legit.
The market is on an upswing, and the small investments you have
in blue chip stocks haven't done much for you lately, so you think
this may be a good time to get in on the ground floor of something
big. After all, some
companies have secretaries that drive Ferraris to work, and all they
had to do was put some faith in their upstart company. Eventually,
you get another call. The
same representative that you spoke with before is delighted to hear
that you are interested, and he transfers you over to a "senior
broker." This
well-spoken individual tells you about a new drug that is in the third
stage of the FDA approval process.
This drug is truly revolutionary… cancer treatment in a pill.
It could eliminate the physical and emotional pain associated
with chemotherapy, and would make treatment affordable to
cancer-stricken people who simply can't afford current methods.
When this drug is finally approved, it's going to be huge, and
you want in. You decide
to purchase 500 shares at eight dollars apiece, and then just sit back
and watch the big returns roll in. Except
that doesn't happen. A
few days later, you notice that the stock you bought in that upstart
pharmaceutical company has dropped nearly nine points since the market
closed the day you bought it. You're
losing money fast and you want answers, so you call the mysterious
representative who convinced you to invest in this "no risk"
stock. The only problem
is, he's in a meeting. An
hour later, he's at lunch. An
hour after that, he's out of the office.
This continues for a week, and with each futile attempt to
contact him, your stock tumbles lower and lower.
Eventually, the number you call no longer leads to a
receptionist, but to the phone company's standard "Out of
Service" message. The
brochures and website don't list a business address anywhere.
Finally, the stock hits rock bottom, and you're out $4,000.
You don't even have a stock certificate to verify your failed
investment. You've just been conned by a boiler room operation. Boiler rooms, so named because of the cheap, low-level office space the illegitimate firm usually inhabits (often near the building's actual boiler room), are one of the more common scams in the world of stock trading. It takes the tried-and-true concept of "buy low, sell high" and exploits it by offering investors "guaranteed" high-yield returns, while knowing the stocks they are selling are either junk, or in some cases, completely nonexistent. Kessler
International, the premier international forensic accounting and
corporate investigative strategies firm, recently announced the
results of a six-month investigation into this crime entity that has
bilked investors from all over the globe out of billions of dollars.
In fact, it is estimated that Americans are swindled out of $1
million per hour due to
investment fraud. Kessler's
investigation has already revealed at least eight corrupt venture
capital firms which have or are cheating countless numbers of
investors in the How
it works During
the first call, the salesman usually does not attempt to sell
anything, but instead whets the potential investor's appetite with
rags-to-riches stories, and requests permission to call again.
Often, victims are sent information brochures that help make
the firm seem more legitimate, or they are directed to the firm's
website. In
subsequent phone calls, they begin to tout certain companies or
investment opportunities, and encourage the victim to strike while the
iron is hot or else lose out on a chance to rake in high returns.
Usually they indicate that the offer is only available to a
select group of people for a limited time. When
the victim is ready to invest, they are told to make a wire transfer
to an overseas bank account or a similar form of immediate payment,
and then are usually besieged with calls to increase their investment.
After the transaction is complete, the victim will likely never
hear from the crooked broker again, unless that victim is an easy sell
who will probably make another foolish investment in the future.
If the victim tries to contact the firm concerning his failed
investment, the calls either go unanswered, or the victim is offered a
chance to recoup his losses by investing in another guaranteed stock.
Selling of shares is generally not permitted by the firm, for
any reason. And in the
event that a victim actually receives share certificates, they are
often worthless forgeries, making it impossible for the victim to get
his money back. Eventually,
when the heat turns up on a particular firm, they can move out of
their boiler room on short notice, taking all the evidence that isn't
already shredded with them. Their
"international offices" are usually nothing more than mail
drops, and authorities often have little to go on.
Sometimes, these firms are not even located in the Avoid
being a victim
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