The North American Securities Administrators Association estimates that investors lose an estimated $10 billion a year--roughly $1 million an hour--to investment fraud promoted over the telephone. Precious metals and oil and gas scams are among the illicit investments most heavily promoted by phone. This tip sheet is designed to provide investors with self-defense tactics to fight off the promotion of investment scams by boiler rooms, the high-pressure phone sales operations from which sales people call to promote abusive and fraudulent deals.
Salespersons may make repeated calls and even become abusive, questioning, for example, the intelligence of anyone who would pass up such a sure thing. Outrageous promises of extraordinarily high profits at little or no risk.
The rule is: The higher the return, the higher the risk. Listen for sales persons who claim it is possible to make extremely high (15, 20, or 30 percent) or even guaranteed profits without any risk of loss. Most legitimate firms will provide written materials clearly disclosing the potential for loss in an investment, as well as its short and long-term tax implications.
A demand for an immediate decision.
Boiler room salespersons want fast action before you have a chance to develop second thoughts or consult with a professional for advice. As a result, many deals will be gone tomorrow, sold out today, or have just one or two remaining openings.
A reluctance to provide information about the sales firm or the investment.
If a boiler room is uncovered, it may be subject to state or federal action. Therefore, some phone scam operators are not forthcoming when asked for information about the sales operation and investment.
Mumbo-jumbo about inside information or secret technology.
In order to close a sale, the voice on the other end of the phone may tell you that this is a sure thing. A common claim is that celebrities, major corporations or banks will be investing shortly. Or the salesperson may claim that a new geological report is coming out soon. In other cases, the claim may be that the company is using some sort of hush-hush black box technology that makes it possible to process gold at a faction of the cost paid by the other firms.
Delayed delivery of the product and/or profits.
This is a classic red flag of an investment scam. If you can't have your investment in hand or under your control in some other location, you have nothing for your money. Beware of promises involving delays of more than a few weeks for delivery of your investment.
Unusual arrangements for collecting funds from investors.
Some con artists try to avoid mail fraud charges by using overnight courier services (Federal Express or UPS, for example). Other phone scam operations go even further sending a courier or cab to pick up the check. No matter what unusual collection method is used, the purpose is the same: Don't give customers enough time to back out of sending money.
When hounded by high-pressure tactics, hang up.
Be wary of advertisements in newspapers and other publications which give little or no information other than a toll free number.
Do not make an immediate decision. Get written information first about the firm, the salesperson and the investment. Do not part with your money until you seek out a professional (lawyer, accountant or broker) for advice. Avoid investments you do not understand. The less you know about the offering, the greater is the chance that you will be swindled. Do not give out your credit card number over the phone to strangers. Contact the Tennessee Securities Division toll free at 800-863-9117 to find out if the firm and salesperson are properly registered to do business in Tennessee. A call to the Better Business Bureau in the city in which the firm is located may turn up calls from investors who have been victimized. If you suspect that you have been contacted by a phone scammer, notify the Tennessee Securities Division of the firm and the name of the salesperson. Prompt action on your part may protect less wary investors.
Many investments promoted over the phone are legitimate. The wise investor will follow these simple steps in order to be able to distinguish the good from the bad in telephone solicitations.