Saturday, November 10, 2007

Stock Promoters - 10 Things to Look Out For

The world of Stock Promoters is just like any other in that there are many methods that are, "black eyes of the industry" if you will. For those of you unfamiliar, here is a list of 10 common scams and things to look out for and avoid when seeking the services of a Stock Promoter.

1. Pump and Dump: Pump and Dump schemes involve false or misleading information and statements to hype up the stocks, which are then 'dumped' on the public at high prices. These schemes usually involve telemarketing and internet fraud.

2. Chop Stocks: Chop Stocks are stocks that have been purchased for pennies and then sold for dollars. In these cases, the brokers are often paid "under the table" as undisclosed payoffs to sell such stocks.

3. Bait and Switch: The Bait and Switch scam in stocks is the same as it is in the retail world. The client is lured in by an advertisement for a product at a reduced price only to then find out that product is unavailable, but a similar one is. And this similar or substitute item (or in this case, stock) is not of the same quality and affordable price as the advertisement.

4. Unauthorized Trading: Some brokerages go as far as to sell stocks with policies that prohibit the customer from selling the stock when they wish to do so. Leaving you stuck with a stock as it loses value.

5. When speaking to a promoter, there are a number of key phrases they like to use that could spell out trouble for you. Here are a few typical lines a promoter will use to try and persuade you to buy a worthless stock:

a. Guarantee of profits and high returns. Promotions rely on the greed of the average individual, so they promise high returns with zero risk.

b. Claims of quick profits. Many promoters will use headlines like "Triple your investment in 3 weeks." The promise of a quick profit is a very common technique.

c. Pressure to buy. Promotions often pressure an individual to invest immediately, saying the opportunity will not last very long. If it's a solid investment opportunity, it will not disappear overnight.

d. Insider Information. Promoters like to imply that the information they are supplying you with is only known to a few people and should not be shared with others. Such information is usually false and is only used to fool an unsuspecting investor out of their money.

6. Boiler Room Operators. Boiler Room Operators are sales people who cold call potential investors and attempt to pressure them into purchasing worthless investments. They are often armed with sophisticated sales scripts and high-pressure sales methods. These operators will try to sell Penny or Microcap stocks, Foreign Exchange Investments, Risky Initial Public Offerings, and House Stocks.

7. Foreign Exchange Investments. A scam artist will try to solicit money from a potential client for investment into a foreign market during periods of financial crisis in such markets. The promoter will try to convince the client that because of the crisis, the stocks are undervalued, making it a great buying opportunity. These investments are usually fictitious.

8. House Stocks. These are stocks that an investment firm has purchased to resell to the public for a profit. They will buy stocks of a thinly traded company then pump up their stock prices and sell them to clients for a profit. Clients will find there are no other buyers for these stocks and without buyers, the stock price will fall and leave the investor with a worthless stock.

9. Affinity Group Fraud. This type of fraud is a fraud against religious, ethnic, and professional groups where a promoter will lull members of these groups into a false sense of security by allowing them to believe the promoter themselves are also a member of the same group the client is. With their guard down, the individual is taken advantage of by being persuaded into a worthless investment.

10. Free Stock Offerings. As promoters have become more innovative, the method of giving away "free stock" has found its way to the internet. A promoter will give free stock to investors without requiring any payment. In these cases, the promoter is getting some other benefit from the investor without the investor being aware of it. Usually the investor is later required to register with the promoter's website and forced to disclose personal information that is later used for undisclosed purposes. Promoters may even offer additional free shares and the investors are asked to solicit more investors for them or link their own sites to the promoter's sites.

1 comment:

sophia said...

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