>
> Put You on Their “Do Not Call” List, If You Ask
>
> Every securities firm must keep a “do not call” list. If you want to stop
> sales calls from that firm, tell the caller to put your name and telephone
> number on the firm's “do not call” list. If anyone from that firm calls you
> again, get the caller's name and telephone number, note the date and time of
> the call, and complain to the firm's compliance officer, the SEC, and your
> state's securities regulator. Further below, you'll find information on how to
> make a complaint.
>
> Treat You With Respect
>
> Cold callers can't threaten, intimidate, or use obscene or profane language.
> They can't call you repeatedly to annoy, abuse, or harass you.
>
> Get Your Written Approval Before Taking Money Directly From Your Bank Accounts
>
> Before investing, you should always get answers to the questions below and
> written information about the investment. If you do decide to buy from a cold
> caller, do not give your checking or savings account numbers to the broker
> over the phone. Brokers must get your written permission – such as your
> signature on a check or an authorization form – before they can take money
> from your checking or savings account.
>
> Tell You the Truth
>
> People selling securities must tell you the truth. Brokers who lie to you
> about any important aspect of an investment opportunity violate federal and
> state securities laws.
>
> <Picture: telphone ringing>
>
> What Are Signs Of Trouble?
>
> Honest brokers use cold calling to find clients for the long term. They ask
> questions to understand your financial situation and investment goals before
> recommending that you buy anything. While you may find their cold calls
> annoying, honest brokers who follow the cold calling rules are acting within
> their rights.
>
> Dishonest brokers use cold calling to find “quick hits.” Some set up “boiler
> rooms” where high-pressure salespeople use banks of telephones to call as many
> potential investors as possible. These strangers will hound you to buy stocks
> in small, unknown companies that are highly risky, or sometimes, part of a
> scam.
>
> Watch for these signs of trouble.
>
> High-Pressure Sales Tactics
>
> Aggressive cold callers speak from persuasive scripts that include retorts for
> your every objection. As long as you stay on the phone, they'll keep trying to
> sell. And they won't let you get a word in edgewise.
>
> “You'd hammer them. I always remember this one guy, I mean, I just stayed on
> the phone for almost an hour, and he finally bought.”
>
> – A “boiler room” broker
>
> Beware of brokers who pressure you to buy before you have a chance to think
> about – or investigate – the “opportunity.”
>
> “Stop right there! You're a businessman and you make decisions every day. You
> didn't get where you are by being stupid . . . Let's confirm the order now.
> OK?”
>
> – A “cold calling” script
>
> Watch out for dishonest brokers who tell you about a “once-in-a-lifetime”
> opportunity, especially when the caller bases the recommendation on “inside”
> or “confidential” information.
>
> “My broker said the company was in the process of buying this 100,000 watt
> radio station . . . The information wasn't on the street yet, but once the
> information did go out, the stock was going to double or triple.”
>
> – An investor in Virginia
>
> Don't fall for brokers who promise spectacular profits or “guaranteed”
> returns. If the deal sounds too good to be true, then it probably is.
>
> “My broker was speaking of the AIDS epidemic and how much work was going into
> it with the laboratories and so on. And this particular company, working so
> close with it . . . he said the stock would go through the roof. And he said
> it was absolutely a sure thing . . . It would just continue to rise. Maybe as
> high as $20 or $30 per share.”
>
> – An investor in Virginia, who lost
> $70,000 while his broker made
> over $15,000 in commissions
>
> Don't deal with brokers who refuse to send you written information about the
> investment.
>
> “I asked the broker not once but three times to send me some information. Ed
> McMahon's been sending you information for years; he hasn't made you any
> money,' was his reply.”
>
> – A reporter for the
> Washington Post
>
> The “Three-Call” Technique
>
> Some cold callers wait before turning up the heat. In their first call – the
> “warm-up” – they'll try to build your trust by describing their firm's past
> successes and the high quality of its research. The callers might ask
> permission to call again if an “exciting” deal comes along, but won't pressure
> you to buy.
>
> “I am invariably told these are not sales calls!! They assure me that all they
> want to do is pass along some information concerning their firm and track
> record, and will get back to me if and when something hot' comes along. When
> asked about such esoteric things as appropriateness, risk levels, risk
> tolerance, asset allocation and/or diversification, the topic is immediately
> changed back to their history of high returns for clients.”
>
> – An investor in Illinois
>
> In their second call – the “set-up” – they'll whet your appetite, telling you
> about a fabulous deal they “think” they can get you into. In their third call
> – the “close” – they'll urge you to “buy nowÏ or miss out.
>
> Bait and Switch
>
> Dishonest brokers lure new customers by encouraging them to purchase well
> known, widely traded “blue chip” stocks. After you take the bait, they may
> pressure you to invest in small, unknown companies with little or no earnings.
> These stocks tend to be very risky and thinly traded, leaving more investors
> with losses than profits.
>
> Paying Too Much
>
> Although they may not say so, dishonest brokers who push you to invest in a
> small, unknown company often work for firms that own large amounts of the
> stock. Their firm may have been involved in the company's initial public
> offering. Or the firm may “make a market” in the stock, which means it buys
> and sells the stock – sometimes called a “house stock”– for its own account.
> If only one firm or a small group of firms makes a market in the stock, the
> price can be manipulated and may not reflect the true value of the company.
> Dishonest brokers often pump up the prices of their house stocks until they
> get rid of their own holdings at high prices. But when they stop promoting the
> stock, the price falls, and investors lose their money.
>
> If you're not careful, you may pay too much for “house stocks.” Some dishonest
> brokers overcharge their customers by adding an undisclosed “mark-up” to the
> price the firm paid for the stock. Although it's illegal for brokers to charge
> excessive mark-ups, some dishonest brokers mark up the prices of the stocks
> they sell by as much as 100% or more.
>
> Finding It Hard to Sell
>
> Many investors find that once they buy a “house stock,” they can't get what
> they paid for it, even if they decide to sell right away. Or they find that
> their brokers simply won't sell the stock at all. Some firms follow “no net
> sales” policies where brokers can't execute orders to sell “house stocks”
> unless they find a customer to buy an equal number of shares. Other firms
> discourage brokers from selling “house stocks” for their customers by offering
> low – or no – commissions on those sales.
>
> Dishonest brokers often refuse to take – or return – phone calls from
> customers who want to sell.
>
> “Whenever I call my broker, I am told that he is in a meeting or out of the
> office.”
>
> – A common investor complaint
>
> These brokers will use high-pressure tactics to persuade you to keep the
> stock. Or they will simply refuse to sell it.
>
> “When I told my broker to sell my portfolio, he said I can't do it . . . I
> can't explain why, but what I'll do is send you the stock and you sell it
> through another broker.“
>
> – An investor in New York
>
> <Picture: caller on phone>
>
> Portrait of a “Boiler Room“
>
> The SEC and state securities regulators have investigated – and taken action
> against – numerous firms and brokers who use high-pressure tactics to sell
> securities. In a recent case, “boiler rooms” were described this way:
>
> The firm was operating a classic boiler room. The brokers sat “cheek by jowl”
> in a room the size of a basketball court. All of their desks were lined up
> side by side in rows. The firm held mandatory sales meetings every morning at
> 8:30 a.m. at which time sales techniques were demonstrated and scripts for the
> firm's “house stock” . . . were distributed. Brokers were expected to follow
> the scripts and only give customers the information they contained. Brokers
> were discouraged from doing any outside research, and were told to rely on the
> firm's research and representations. . . .
>
> After the morning sales meeting, brokers were expected to spend the entire day
> (except for a lunch break) on the telephone. The firm expected a high volume
> of sales, and if brokers did not stay on the phone, they were fired. . . .
>
> One broker conceded that he falsely identified another salesman . . . as the
> firm's research analyst, and gave a fictitious description of the purported
> analyst as “fat, bald, and badly dressed.” He stated that the reason for the
> firm's policy of discouraging customer sales was its desire to avoid negative
> price pressure on house stocks, a circumstance that he did not disclose to
> customers.
>
> – From an opinion in a recent SEC enforcement case
>
> Brokers in one boiler room defrauded investors by
>
> •lying about the firm's reputation and expertise, claiming it had a “research
> department” that analyzed stocks when it didn't,•refusing to say anything
> negative about the stocks they pushed, including the “risk factors” discussed
> in the prospectus,•making baseless price predictions, promising that certain
> stocks would double in price within a short time period,•impersonating other
> salespeople at the firm, and•discouraging customers from selling the stocks
> they recommended without regard to the customers' best interests.
>
> Knowing how boiler rooms operate, you should be extremely skeptical when
> considering any investment opportunity a stranger tries to sell over the
> phone.
>
> <Picture: dollar bill>
>
> What Can I Do?
>
> Report Abusive Cold Callers
>
> When cold callers use harassing, abusive sales tactics and lie to you about
> investment opportunities, they violate the cold calling rules and break
> federal and state securities laws. Don't let them off the hook! To complain
> about abusive cold callers, write down the name of the caller, the name of the
> firm, the date and time of the call or calls, what the caller said to you, and
> what you said to the caller. You can send your complaint to either the SEC or
> your state's securities regulator.
>
> U. S. Securities and Exchange Commission
>
> Office of Investor Education and Assistance
>
> Mail Stop 2-13
>
> 450 Fifth Street, N.W.
>
> Washington, D.C. 20549
>
> Phone: (202) 942-7040
>
> Fax: (202) 942-9634
>
> E-mail: help@sec.gov |
