Schemes, Scams, Frauds.

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Techniques Used To Sell Fraudulent Investments

The "Three-Call" Technique

Some cold callers wait before turning up the heat. In their first call, the "warm-up", they'll try to build your trust by describing their firm's past successes and the high quality of its research. They might ask your permission to send a brochure and call again if an "exciting" deal comes along, but won't pressure you to buy.

You are considered a lead when you accept a brochure from a qualifier. They will then say to watch the paper for the stocks price and they'll call you back. You will soon be rejected if you appear to be a professional or official who might ask too many questions. Younger women are also avoided because they will fight for justice rather than just feel shame when taken in.

In their second call, the "setup", they'll whet your appetite, telling you about a fabulous deal they "think" they can get you into. In their third call, the "close", you will be passed on to an "opener" who will set the hook with an initial sale of stock by appealing to your ego and desire to make money. They'll urge you to buy now or miss out.

"We're talking about a cash cow here. But it's going fast. I need your check tomorrow at the latest."

A technique often used is to give two strokes ( info on seller or company ) then ask for a monerary commitment while avoiding money-related terms such as "buy", substituting instead, "grab" or "take" some stock.

The Infallible Forecaster

One ingenious setup involves a person phoning you and quickly assuring you that, "No", they didn't want you to invest a single cent. "Never invest with someone you don't know," they say.

But he says he would like to demonstrate his firm's "research skill" by sharing with you the forecast that a certain stock or commodity is about to experience a significant price increase. Sure enough, the price soon goes up.

A second phone call doesn't solicit an investment either. He simply wants to share a prediction that the price of something else is about to go down. "Our forecasts will help you decide whether ours is the kind of firm you might someday want to invest with," he adds.

As predicted, the price subsequently declines. By the third call, you are a believer. You not only want to invest, but insist on it —with a big enough investment to make up for the opportunities you have already missed out on.

What you have no way of knowing is that the scammer began with a calling list of 200 people. In the first call, he told 100 that the price would go up and the other 100 were told it would go down.

When it went up, he made a second call to the 100 who had been given the "correct forecast." Of these, 50 were told the next price move would be up and 50 were told it would be down.

The end result: Once the predicted price decline occurred, he has a list of 50 persons eager to invest. After all, how could they go wrong with someone so obviously infallible in forecasting prices? But in this case they did go wrong, the moment they decided to send a half million dollars from their collective savings accounts.

Baits to Lure You In

Fraudulent investment promoters are glib and resourceful. In their sales pitch, they'll say that they have high-level financial connections; that they're privy to inside information; that they'll guarantee the investment; or that they'll buy back the investment after a certain time. To close the deal, they often serve up phony statistics, misrepresent the significance of a current event, or stress the unique quality of their offering, anything to deter you from verifying their story.

"I just got a hot tip from an inside source that this stock will go through the roof."

"The rumor on the Street is that this deal is ready to take off."

The scams have included private and public stock offerings in Internet "shopping malls," gambling cruise ships, stamps, Internet pyramid schemes, movie productions, film deals, 19th century railway bonds, gold mines, iron mines, equipment leases, greeting card manufacturing, a board game teaching investors how to get wealthy, church financings, project financing, prime bank notes, foreign currency, theme restaurants, computer trading systems, Internet-related and "offshore" investments and viatical settlements to name but a few.

The story they tell must be believable but not perfect, for it is the weakness, a problem correctable in time, that encourages people to believe more. They will promote it as a terrific concept with superior potential, knowing that people focus on the fluff, not the facts.

When a stock scheme has the resources to reward enough early investors, that they in turn become promoters, so much weight is carried by these winning voices that they will reinvest more themselves and continue to promote the upward cycle.

Weak, greedy and foolish investors can be controlled and manipulated to tell others calculated lies, especially if they believe the information is confidential. Once the media latches on, further credibility is instantaneous. If you see it in print, it's got to be real.

They will pump up the potential while assuring you that there is an expectation of near-term profits because:

	celebrities, major corporations or banks will be investing shortly,
	they are close to being on the shopping network or in a major catalogue,
	a favourable new geological report is coming out shortly,
	they are lining up a deal with a major distributor,
	they are negotiating with a major resource company or major pension fund,
	all trucks, cars, homes, computers etc. will be required to have the company's product,
	the company is using some sort of hush-hush "black box" technology that makes it possible to process resources at a fraction of the cost paid by other firms,
	other companies are so jealous or scared they are sending spies,
	it has cutting edge technology that will cure all known illnesses,
	it will "change the world" by altering time and space.

Soon a vague but romanticized business concept is replaced in your mind with a vision of this company producing only money in vast quantities.

For most investors the stock market is the single most exotic mystery in their business and monetary lives, so it's easy for cons to make a dubious new venture sound like a surefire moneymaker, especially if the press is writing about successful legitimate companies in similar industries.

But while they claim to offer investments in exciting sounding businesses, they fall far short of what they promise.

Some cons have promoted the sale of certain investments which are portrayed as conferring "alien immigration status" on foreign nationals seeking to emigrate to the United States. The value of citizenship usually outweighs the desire to fully examine these worthless offerings.

Aspect of Risk

Investment schemes usually promise outrageously high rates of return with no risk. They will promise you the investment chance of a lifetime without giving you any meaningful written information on the product, or the pitfalls involved, for your evaluation. Even if you are provided with a prospectus, they are so financially complex that the information is meaningless to most, if not all investors; though this holds equally true for any stock issue.

"If this doesn't perform as I just said, we'll refund your money no questions asked." "Your return is guaranteed. There's no way you can lose!" "Everyone else that invested in this did very well."

A con man may become impatient or even aggressive if the question of risk is raised.

"Look, I've got better things to do than waste time with people who lack the courage and foresight needed to make money! This is a ground floor opportunity to realize a better return on this investment compared to any other you're involved in."

With this kind of put-down, he hopes you won't bring up the subject again. To make his pitch more credible, he may acknowledge that there could be some risk —then quickly assure you it's minimal in relation to the profits you will almost certainly make.

"Of course there's a risk. There's a risk in everything ."

"Perhaps a return of 100% in twenty minutes sounds a bit unrealistic, but that's exactly how all our initial public offerings trade. That's a fact! All I ask for is your vote of confidence this one time. I won't let you down."

Show of Familiarity

Cold callers often try to "warm up" potential customers with flattery or friendship. They might try to put you off guard by chatting about your hometown or the local sports team. Or they might falsely suggest they've spoken with you before.

They are certain to know more about you than you know about them. They assume that you want more income, that you're receptive to a bargain, and that you are reluctant to be discourteous to someone on the phone.

"In just a short while, your profits will come rolling in." "This deal is so great, I invested in it myself."

Doing You A Favour

They will imply that they are doing you a favor by offering you the investment opportunity and will sound so confident about the money you are going to make that you will become confident enough to let go of your savings.

"You've got to understand that typically I don't make these type of calls. I've got people to do that. I've got eleven years in this business and worked my way up to senior vice president with 400 clients and $40 million dollars under management. I don't need this account, but I want it."

"This opportunity is the best chance to make extra money for guys who work for a living, guys like you and me." "We don't make money unless you make money!" "I know this can work for you." "I personally guarantee your success, right down to the last penny." "Give me one percent of your trust. I'll earn the other 99 when you see the return."

An Understanding of Psychology

Con artists do their homework before beginning a scam. They understand what triggers people to buy on blind faith. They will appeal to the dreamer in you.

"I've been in the business for twenty years, and I can tell you this: I know no other program that's legal, that's so easy to afford and so easy to work, that can bring in this kind of big money from such a small investment."

Many people secretly believe that a rags-to-riches story can become a reality for them —if only they get the right break. To them, investing in untested technologies and cutting edge products, before anyone else does, is a surefire way to make money.

Skilled con artists can bring out your worst traits, particularly greed, envy, fear, and insecurity.

"I sense you like to make money and you think it's a compelling buy, but I think there is another factor here. A psychological comfort factor… I'm a stranger asking you for an order. Let me address that because it's our biggest problem. It's like the first kiss. We're not day traders. We position stocks for the long term."

Fear is a particularly powerful motivator for con artists during times of economic downturn .

Scammers will exploit your concern about whether or not you will have enough money to meet future living expenses and medical needs.

"Where else can you earn such a large return? Not in CDs or in a savings account."

Con artists try to make you feel inadequate if you don't believe them. If you find yourself making investment-related decisions, the way most investors do, based only on your emotions, get ready to experience some new ones like shame, loss, guilt and remorse.

Avoidance of Questions

There is no way to determine whether a sales call is honest simply by talking with someone on the phone. No matter what questions you ask, or how many you ask, skilled swindlers have ready answers. Their persuasive scripts include retorts for your every objection. They typically brush aside questions or concerns with vague answers or assurances.

"Sure we could finance this venture ourselves. But we're trying to build a power base for the future, with folks like you."

Although you can't necessarily spot a con man by the way he talks, most are strong-willed, articulate individuals who will dominate the conversation and won't let you get a word in edgewise. The more they talk, the less chance you have to ask questions. As long as you stay on the phone, they'll keep trying to sell you.

"I know you get offers everyday from people who tell you they're going to make you rich. I can make it easy for you to make your decision based on actual facts." "I can't be lying. There are laws against that."

To keep you from doing so, they will continue to ask questions using the Socratic method where the questions have rhetorical "yes" answers, such as:

"You would at least be interested in hearing about such a fantastic investment opportunity, wouldn't you?" or, "You would like to make a large amount of money in a short period of time with little or no risk, right?"

Adding to your belief that they are a legitimate broker they will feign indignance if you question their honesty, integrity or abilities.

High-pressure Sales Tactics

Salesmen may even become abusive; questioning, for example, the intelligence of anyone who would pass up such a "sure thing."

"Stop right there! You're a businessman and you make decisions every day. You didn't get where you are by being stupid . . . Let's confirm the order right now. OK?"

One broker recalls: "You'd hammer them. I always remember this one guy, I mean, I just stayed on the phone for almost an hour, and he finally bought."

Boiler room salesmen want fast action before you have a chance to develop second thoughts or consult with a professional for advice. There's usually lots of pressure and some compelling reason why they need your commitment to buy immediately.

	"The opportunity can be offered to only a limited number of people".
	"Delaying could mean missing out on a large profit as the "market is moving".
	"I hate to disappoint you but your order can't exceed a certain limit, the demand is so great!"
	"The deal will be "gone tomorrow," "sold out today" , "won't be available much longer".
	"Only a few" shares of stock or partnership units are left."
	"I'll hold it for you at this price so you can go to the bank".
	If you are sitting on the fence they'll say "the trade's already gone through" and obligate you to the purchase.
	"If you are short on cash, just borrow the money and then pay it back out of your profits".
	"I asked the broker not once but three times to send me some information. "Ed McMahon's been sending you information for years; he hasn't made you any money," was his reply."

They hint that they are privy to impending insider information which will push the stock up, with a narrow window of opportunity to buy, giving you a virtual certainty of big profits within a short period of time. When you feel the time constraints of a potentially lost opportunity you will almost certainly forego the wisdom of doing background checks on the principal or company involved.

They will say that you'll miss out if you don't send them thousands of dollars by overnight courier or wire transfer simply because they don't want to give you enough time to back out of sending money. Once you give your money to a scam artist, don't plan on seeing it ever again.

After The Sale

Before you invest, con artists are very friendly. They take a personal interest in you out of the blue. They called back when they promised they would. Each time, they tell you even more good things about the investment along with various reasons you should add it to your portfolio, so that you can maximize your good fortune. In fact, the contacts may become so frequent that you may wish that your first contact had been your last.

From one elderly lady who emptied out her retirement savings: "Everything was just numbers after a while. Not like actually handing over money, just little slips of paper in the form of cheques."

Too often, however, once you have invested the limit of your savings, contact with the con artist dwindles and then stops altogether. Promoters of fraudulent investments often operate a particular scam for a short time, quickly disperse the money they take in, then close down before they can be detected.

Before that happens they will attempt to stall suspicious investors who might suspect that they have been defrauded. A "cooler", usually a woman, is trained to handle irate customers with soothing assurances and sincere diversions. This process may involve lull letters, in which the promoter of the scam blames the temporary delay of the promised high returns on various factors, including weather, union problems, delayed equipment delivery, labor problems, government red tape, and so on.

Such excuses may provide the con artist with valuable additional weeks or months in which to swindle hundreds of additional victims. Often, after folding up one operation, they reopen under another name, selling another investment scam, sometimes to the same victims.

Coverage of PCL Internet International Limited, Paul Turner and Stephen Daultry

Microcap IPO Stock Fraud - report

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