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Microcap & Penny Stocks : Zia Sun(zsun) -- Ignore unavailable to you. Want to Upgrade?

To: StockDung who wrote (8348)	6/16/2000 2:14:00 PM
From: Sir Auric Goldfinger	Respond to of 10354

Stock Scammers Steal From The Greedy Stock Scammers Steal From The Greedy June 16, 2000 forbes.com By Dan Ackman NEW YORK. 10:10 AM EDT-If some broker you don't know from a company you never heard of calls you touting a stock that no one knows, you'd probably hang up faster than you could say Gordon Gekko. But some people don't hang up, which creates an opportunity for outfits like DMN Capital Investments, the firm federal prosecutors charge had mob ties and stole from thousands of investors across the country. In an indictment filed June 14 in Federal District Court in New York, U.S. Attorney Mary Jo White charged 21 people with stock manipulation and fraud backed by violence and threats of violence. The motivation of the miscreants is clear. What is less obvious is what motivates their alleged victims to shell out hard-earned cash to a complete stranger over the telephone. As it turns out, victim and perpetrator are guided by the same impulse--the hunt for the big score. The defrauders, however, know a lot more than the defrauded, and that makes all the difference. The charges involve 120 defendants including alleged Mafia capos and soldiers and a former treasurer of the New York City detectives union. The size of the scheme and the alleged role of traditional leg-breakers is a new wrinkle. But the outlines of the scam have been seen many times before. White called DMN "an investment bank to the crooked and corrupt." She was talking about the people she indicted. But the people she is protecting appear to have some of the same qualities: larceny in the heart and the naive belief they can get something for nothing. "The victims are people who think that everybody's a millionaire overnight," says Ira Lee Sorkin, a lawyer and former head of the Securities and Exchange Commission's New York office. "They want to get in on the boom. They are greedy and gullible. They don't ask questions; they just write checks." A lot of people want to get in on the boom. But if you're in the check-writing mood, why not write them to reputable brokers like Prudential or Smith Barney? Sorkin says many of the people who deal with DMN and other firms like it have other investment accounts, also. Still, these victims who may be making a 10% or 20% annual return at Dean Witter can still be lured by the prospect of 20% per week return offered by the boiler rooms--especially if it's offered the right way. The men who work the schemes are skilled salesmen who pull prospects in bit by bit, explains Ellen Zimiles, a former federal prosecutor who is now a principal of KPMG. The brokers start by selling a customer a stock that his firm controls and from which the customer will profit. Then the broker calls back with another tip. That one makes money, too. The broker explains his--and the customer's--success by saying that he works for a small firm that is more interested in the little guy. But then he sells the little guy another stock. When the bottom falls out, suddenly the broker can't get to the phone, or he won't sell, Zimiles says. If the broker's assistant says he's busy it's probably no lie. A boiler room broker will make 500 calls a day, Sorkin says. "If he gets 50 or 25 leads, if he gets five customers, that's a great day." Some boiler room customers are not "little guys" and do make money, and these customers are crucial to a crooked broker's fortunes. Sorkin says he has seen cases where investors have put $500,000 into an initial public offering. The big play helps the brokerage establish what looks like a market in the stock, which makes it possible to sell to hundreds of smaller investors, while still assuring the major player a solid profit. The unschooled investor sees that the stock opened at $5 and is now at $6.50, and he wants to get in. The meteoric rise of once-obscure Internet companies plays a role here. "Investors have gotten used to the idea that companies with no previous record can make money overnight," says Lee Richards, a former assistant U.S. attorney who specialized in securities fraud. Having heard the stories, some of which have the added benefit of being true, "They are willing to take a flier on just about anything," Richards says. Boiler room cases tend to be hard to prosecute because some of what the brokers do is not clearly illegal, Richard says. If the broker is selling a real--albeit small--stock, who's to say what it's worth? The prosecutor's ability to prove fraud depends on the specifics of what is being sold, what the broker said, and what he knew when he said it. While the prosecutors in the DMN case estimated that the fraud cost investors about $50 million, the boiler room rank and file don't see much of that, says Bart Schwartz, a former prosecutor now president of DSFX, a New York investigations firm. This is the case despite the fact that they work very hard and "are very good at what they do." Making money on the fringes of Wall Street isn't as easy as it seems. But, Schwartz says, the brokers "are looking for the big score, also."