Fifth part.
"Boiler-Room" Scams or
"Cold Call" Investment Scams
Boiler-rooms are high-pressure phone sales operations from which
sales people call to promote abusive and fraudulent deals.
Overseas boiler-rooms may make use of various telecommunication
facilities to maintain "virtual offices" in Singapore to create a
false impression that they are based in Singapore. For example,
they will use the services of business centres which provide mail,
fax and phone forwarding services to wherever their operation is
actually based. They may also open bank accounts in Singapore to
receive remittances. The monies are usually quickly repatriated
elsewhere.
1. How to spot Boiler-room operations?
(a) High-Pressure Sales
Tactics Boiler-room operators make cold calls to potential
investors and persuade them to buy the recommended stocks through
long and, haranguing phone calls. Very often they give promises of
high returns, deflect questions and use psychological ploys to
trick people into buying stocks they know nothing about or do not
really want. To keep up the pressure, boiler-rooms will often
supplement their telephone calls with faxes, spam e-mails or direct
mail-outs containing bogus stock research reports, stock tips or
profiles of their sham brokerage or investment advisory
firms.
(b) The "Three-Call" Technique
Some cold callers wait before turning up the heat. They will first
build your trust by introducing about their services and track
record. In a subsequent call, they will tell you about a fabulous
deal. In a third call, they will urge you to "buy now" or miss
out.
(c) Bait and Switch
Dishonest brokers may lure new customers by introducing well-known,
widely traded "blue chip" stocks. Subsequently, they will introduce
investments 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.
(d) Unusual arrangements for collecting funds from investors
Some operators may use commercial overnight courier services or
even send a courier to pick up the cheque from you. No matter what
collection method is used, the purpose is the same: Not to give
customers enough time to back out of sending money.
(e) Micro-cap Stocks
Boiler rooms usually get investors to invest in stocks of foreign
companies with low capitalization ("micro-cap stock"). They may
recommend stocks in exotic fields like environmental engineering,
bio-technology, medical research or high technology to make the
investment sound exciting and more attractive to investors.
They may claim to be connected with insiders from these micro-cap
companies, or involved in the companies' promotion or are the
market makers of the stocks, which they will buy and sell for their
own account. Boiler room operators will encourage investors to buy
on the basis of information they provide over the phone, through
their faxes, e-mails, or mail-outs. They may also claim that the
stocks are traded in the "over-the-counter" (OTC) market in US and
quoted on OTC systems to give investors a false sense of security
in buying the shares.
Often, investors do not fully understand the risks involved in OTC
stocks. OTC stocks are NOT listed and traded on NASDAQ or
recognised stock exchanges and are not subject to the same
stringent reporting requirements of the recognised exchanges.
Information on these micro-cap companies is difficult to obtain.
Although some bulletin boards or quotation bureau may publish
prices of the OTC stocks, purchases and sales are made with market
makers. These stocks tend to be low priced and trade in low
volumes.
(f) Paying Too Much
Unknown to investors, the boiler-room operators may themselves hold
stock in a company they are promoting. They sell that stock to
investors when its price peaks at the height of the buying frenzy.
The boiler-room operators may also use the Internet to spread
rumours in chat rooms and on bulletin boards to attract investors
to buy their recommended stocks. After investors put in the money,
the stock price will usually fall sharply, as there will no longer
be demand or support for the company's stock.
(g) Finding It Hard to Sell
Many investors find that once they buy the "recommended" stock,
they can't get what they paid for, even if they decide to sell
right away. Or they find that their brokers simply would not sell
the stock at all. Some brokers just become uncontactable.
(h) "Double Whammy"
Some boiler-room operators will hit an investor twice by posing as
another "broker", after the investor's first "broker" disappeared.
They may pretend to help the investors to sell stocks that the
first "broker" sold to the investor, on the condition that the
investor buys another stock or pays additional sums.
2. How to deal with Cold Calls?
(a) When hounded by high-pressure tactics, hang up. Remember you
are in control. You do not have to entertain the caller if you do
not want to.
(b) Avoid making a hasty or immediate decision. Get written
information first about the firm, the salesperson and the
investment. Verify the information independently through credible
sources and seek professional advice if necessary. A list of firms
licensed to deal in securities in Singapore is available at the
website of the Monetary Authority of Singapore at
www.mas.gov.sg.
(c) Avoid giving out information on your credit card, bank account
number or any personal particulars over the phone to
strangers.
3. Lodging a complaint
Investors should exercise caution before parting with their money.
It is often too late to recover any monies by the time they find
out about the scam. If you have received dubious cold calls for
investment and would like to report the matter, we would like to
hear from you.
Write to us telling us:
the name and address(es) of the cold calling company
the name of the person who called or contacted you
dates when you were contacted
securities offered to you/bought by you
how much money you sent and when and where you sent it
if the company has been taken over or been taken over by any other
businesses, and
what documents you have been sent.
You may also like to refer to the websites of the following foreign
regulators on the subject of boiler rooms or cold call investment
scams:
Australian Securities & Investments Commissions @
http://www.asic.gov.au
Securities Futures Commission in Hong Kong @
http://www.hksfc.org.hk
Thailand Office of Securities and Exchange Commission @
http://www.sec.or.th
Financial Services Authority in United Kingdom @
http://www.fsa.gov.uk
