hmmmm ??? I think it was back in this time.....I will have to research back and see if i can find my trade transactions....
seems SO long ago..
Investment Fraud Is Soaring Along With the Stock Market
By LESLIE EATON
Published: November 30, 1997
The surging stock market has spawned widespread investment fraud across the country, with New York as the epicenter of the problem, according to law enforcement officials and securities regulators.
The fraud involves the sale of marginal companies' low-priced stocks to amateur investors who are besieged by telephone sales calls. While the victims are usually told that the company in question is the next Microsoft or McDonald's, the shares they buy often turn out to be worthless.
Americans lost $6 billion through this kind of fraud in 1996, according to state securities regulators, who report that complaints about stock-market swindles are up 25 percent through midyear. At the Securities and Exchange Commission, complaints about unsolicited sales calls from brokers -- known as cold calls -- increased 37 percent in 1996, while total complaints rose 10 percent.
In New York, which is home to many of the brokerage 'boiler rooms' that push phony stocks, complaints about brokers jumped 40 percent last year, to 3,100, and are running at an even higher rate this year, said Andrew Kandel, chief of the securities bureau for the State Attorney General, Dennis C. Vacco.
Law enforcement officials are becoming concerned that con men, swindlers and even violent thugs are turning to what they see as easy pickings in the stock market. Last week, the United States Attorney in Manhattan indicted 19 people, including some described as senior members of two of New York's organized crime families, on charges that they defrauded investors in seven states out of millions of dollars.
Wall Street has always had a dark side, and stock swindlers still represent a tiny fraction of the securities industry.
But the size and scope of fraudulent activity appears to be soaring along with the stock market, which has given investors unprecedented financial gains in recent years, just as more Americans than ever are investing in the market. Just this year, the broad stock market has climbed almost 30 percent, despite the recent turmoil in markets around the world; historically, stocks have risen about 10 percent a year.
The shares of some small, young, sometimes money-losing companies have soared even higher, particularly new issues for technology companies, where returns of as much as 350 percent in just a few months are not unheard of. Publicity about such hot deals has increased Americans' interest in making such investments -- along with their gullibility.
'There's so much money in the stock market, and so much psychology that everything will go up, that people are much more predisposed to throw dollars at get-rich-quick schemes,' said William R. McLucas, director of enforcement for the Securities and Exchange Commission, which has set up a special task force to consider ways to root out fraud in the small-stock marketplace.
The commission is not alone. Regulators from states across the country have banded together to go after New York's stock-pushing telemarketers, who are also under increasing scrutiny from the National Association of Securities Dealers.
Both Congress and New York's Attorney General have held hearings this year on stock fraud; this week, Mr. Vacco is expected to release a report calling for changes in state laws and securities-industry regulations to make it easier to crack down on swindlers, changes that are supported by securities-industry giants like Merrill Lynch.
Prosecutors have filed an unusual number of criminal cases recently against people they accuse of organizing small-stock scams. At the United States Attorney's office in Manhattan, traditionally the most active in the securities area, Wall Street-related indictments have almost doubled in the last year, and many of those relate to boiler rooms, bribery and racketeering in the small-stock arena.
Historically, penny-stock fraud occurred mostly in the western United States, where brokers based in Denver and Salt Lake City sold worthless mining and energy shares to the unwary. In the booming stock market of the 1980's, this kind of scam moved to both coasts, where swindlers set up shop in places like Boca Raton, Fla., and San Diego.
But in the late 1980's, prosecutors and regulators focused more on the collapse of the junk bond market and crimes like insider trading. Only recently have they been forced to turn their attention to the boom in small-stock fraud, which has been fed not only by the soaring stock market and Americans' increasing interest in investing but also by the rise of low-cost telecommunications and technology like the Internet, which make the business of stock promoting easier and more efficient.
Even people who describe themselves as experienced investors have been taken by New York con artists. Take, for example, Fred Geiger, a construction executive in Tampa, Fla. It was only after he sent the $5,600 check to the stockbroker in New York that Mr. Geiger became suspicious about the brokerage firm, Paramount Capital Management, that had sent him a glossy brochure.
When he could not find any evidence that the company he thought he was investing in planned to sell shares to the public -- among other things, it had not filed the necessary papers with the S.E.C. -- Mr. Geiger asked a friend of his wife to drop by Paramount's offices on Broadway near Wall Street. What he found was 'an office with two desks and two phones, yellow pages and Fedex envelopes,' Mr. Geiger told regulators in early November. 'I think it could be a possible scam.'
The S.E.C. agreed, and on Nov. 19 got a judge to freeze the bank accounts of Paramount Capital, which appears to have been set up by a 20-year-old who had worked briefly at three brokerage firms in the city.
Complete fictions like Paramount Capital Management are not uncommon. Over the summer, Mr. Vacco's office closed an outfit calling itself Concorde Capital, which was operating out of a one-bedroom apartment on Hanover Square in Manhattan. Five people, including two convicted felons, were arrested; one has pleaded guilty to six felonies.
Another problem is what regulators call a 'pump and dump.' In these cases, stock promoters -- often disbarred lawyers or brokers who have lost their licenses -- gain control of most of the shares of a marginal or struggling business. Then they hire people to help drive up the price of the stock. A public relations firm may receive free shares in exchange for issuing glowing press releases about the company and its prospects. An 'analyst' may recommend the stock in a newsletter, on the radio or over the Internet, also in return for free stock, which he would sell when the price started to rise.
Investors buy these phony investments from aggressive salesmen who usually describe themselves as senior executives of legitimate-sounding firms with Wall Street addresses. In fact, those addresses turn out to be dingy offices, one-bedroom apartments or even mail drops.
And the 'executives' are young men with high school educations whose only training is in the hard sell and whose previous jobs may have been at pizza parlors or tire stores. They receive huge commissions, known in the business as 'grease,' which may take the form of stock, cash or even drugs. (Federal prosecutors in Brooklyn filed a case earlier this month against a convicted drug dealer who authorities said recruited would-be brokers on the subway and rewarded them with marijuana.)
But the big profits from this business go not to the brokers but to the organizers, who sell their shares once the price starts to rise. In the mob-related case brought recently in Manhattan, promoters made $1.4 million by selling shares they drove from pennies to $3 a share, the authorities said.
The biggest problem for regulators, however, may be the large operations that on the surface appear to be legitimate brokerage firms, which they sometimes were before the con men took them over. These firms often make enough money that they consider even multimillion-dollar fines merely a cost of doing business.
Earlier this year, the Federal Bureau of Investigation raided Sterling Foster & Company, which the National Association of Securities Dealers says made $53 million in 14 months by defrauding investors. An executive of the firm recently pleaded guilty in Manhattan to conspiracy to commit securities fraud and launder money.
One Florida investor, a semiretired businessman who spoke only on the condition that his name not be used, said he and his family lost several million dollars by investing with a stockbroker at a firm that specialized in initial public offerings of small stocks. At first, his investments appeared to be making money, the investor said.
But last summer, some of the stocks started to fall -- and his broker talked him out of selling. 'He kept saying, 'No, that's the biggest mistake you can make. I know what's going to happen. There will be big announcements,' ' the investor said. The announcements never materialized. The investor has since discovered that many of the stocks were said by regulators to have been manipulated. He believes the broker churned his account to reap big commissions.
Regulators urge prospective investors to check out people who try to sell them investments by calling state officials or the regulatory division of the National Association of Securities Dealers, which keep records of complaints about brokers and disciplinary histories.
Investor advocates also recommend ignoring brokers' pleas, threats or claims of once-in-a-lifetime opportunities for those who send money right away. They also suggest that investors insist on receiving the legal documents -- a prospectus or registration statement -- that describe a company and its securities.
Investors should also trust their instincts, said Mr. Geiger, the investor who tipped off the S.E.C. 'Probably somewhere back in my mind, early on, I felt something was wrong,' he said. 'I should have gone with my gut.'
