How to Protect Yourself from Worthless Stock Scams

March, 2012:

How to Protect Yourself from Worthless Stock Scams:

Regulators often refer to worthless stock scams as “recovery room operations,” “advance fee schemes,” or “reload scams” because the perpetrators prey on individuals who lost money once and are willing to invest even more in the hope of recovering their losses. Here are several ways to arm yourself against these thieving opportunists:

Look Past Fancy Websites and Letterheads – Anyone who knows how to “cut and paste” can create impressive, legitimate-looking websites and stationery at little to no cost. Don’t be taken in by a glossy brochure, a glitzy website, or the presence of a regulator’s official seal on a web page or document. For example, the SEC does not authorize private companies to use its seal. If you see the SEC seal on a company’s website or materials, think twice – and then think twice again.

Be Skeptical of Government “Approval” – Like most regulators around the world, neither the SEC nor any state securities agency evaluate the merits of any securities offering, nor do they determine whether a particular security is a “good” investment. Moreover, they never endorse specific firms, individuals, products, or services.

Deal Only with Real Regulators – Don’t be fooled by those who tell you how and where to check out their credentials. Go straight to a real regulator for help. Here are some URLs you’ll need to find a regulator:

International Regulators — http://www.iosco.org/lists/
U.S. Regulators —
SEC — http://www.sec.gov
FINRA — http://www.finra.org
State Regulators — http://www.nasaa.org

Caution: If your contact provides any of these links electronically (in an email or on a website), do not simply click on those links. Type the full URL into your web browser yourself. Even though the URL looks right, a fraudster’s link can take you to a very different destination.

Independently Determine Whether the Offering Is Registered — In general, all securities offered in the U.S. must be registered with the SEC or qualify for an exemption from registration. You can see whether a company has registered its securities with the SEC and download its disclosure documents using the SEC’s EDGAR database.

Check Out the Broker and the Firm – Always verify whether the individual broker and the firm are properly licensed to do business in your state, province, or country. If the person claims to work at a U.S. brokerage firm, use FINRA’s BrokerCheck website or call FINRA’s Public Disclosure Program hotline at (800) 289-9999. If the person works elsewhere, contact the securities regulator for that country – and also for your home country, if more than one country is involved.

Tip: Several international regulators list on their websites the names of unlicensed firms or entities that have allegedly targeted their citizens for worthless stock scams and other frauds. Some sites that presently maintain these lists include:

Australian Securities and Investment Commission
Bermuda Monetary Authority
Guernsey FSC
Hong Kong Securities and Futures Commission
Indonesian Capital Markets Supervisory Agency (BAPEPAM)
Irish Financial Services Authority
Isle of Man FSC
Italian CONSOB
Netherlands Authority for Financial Markets
New Zealand Securities Commission
Philippines SEC
Spanish CNMV (click on “Investor Alerts” under “Cautions”)
Thailand Securities and Exchange Commission
United Kingdom Financial Services Authority

Please note that the information contained on these lists may or may not be accurate. Therefore, it may be necessary for you to conduct a more through investigation of the company with which you are involved or which you are contemplating becoming involved.

Independently Verify References – Never rely solely on references given to you by a broker you’ve never worked with before. The “international organizations” or “satisfied clients” they suggest you contact may well be part of the scam.

Be Wary of Unusual Banking Instructions – Most reputable brokerage firms in the U.S. would not ask you to send your money to a non-U.S. bank – or to a U.S. bank for further credit to another bank or entity. In fact, a U.S. broker probably would not ever ask you to send payment to their bank at all.

How to Get More Information:

If you want to invest wisely and steer clear of frauds, you must get the facts. Never, ever, make an investment based solely on a promoter’s promises over the telephone or what you see on the Internet – especially if the investment involves a small, thinly-traded company that isn’t well known. And don’t even think about investing on your own in small companies that don’t file regular reports with the SEC, unless you are willing to investigate each company thoroughly and to check the truth of every statement about the company. Otherwise, be prepared to lose your entire investment.