There are just so many ways to fool the public. It may seem that
investment schemes are constantly changing, and that promoters are
devising new and creative ways to deceive investors, but, most often,
the latest scams are just variations on older themes.
Still, stock schemes continue to thrive, and to cost the public billions of dollars. Is there no solution? By the time regulators catch up with an illegal scheme, investors generally have lost money. That means investors must act as their own first line of defense, and avoid dubious investments in the first place. How can they do that? There are “red flags” flying that signal the possibility of a stock scam. Here is our short list. Five warning signs that scream out, “Stay Away!”:
There are a host of business opportunities and attractive locations within the 50 United States. That’s why we see red – as in red flags – when a company is formed in the U.S., trades on a U.S. market, and has its only offices in Canada. We wonder why – and we think investors should also.
The fact is, there are plenty of legitimate companies in Canada – but they generally are engaged in a business that has ongoing operations within that country, or some other meaningful Canadian connection. When a Nevada corporation that trades on a U.S. Over-the-Counter market, has an office in Canada, but no Canadian operations, we can only wonder whether there are ulterior motives at play. If the Company’s principal investors are offshore corporation, we become even more concerned.
The scenario may suggest that someone is trying to operate outside the jurisdiction of U.S. regulators. The SEC and state regulatory officials have a difficult enough time enforcing the securities laws in the United States. Unscrupulous promoters are well aware that U.S. regulators have limited resources, and often receive inadequate assistance from Canadian officials who are focused on scams that target Canadian citizens.
Has a company recently issued a large number of shares to its officers, directors or consultants? Are significant blocs of stock held by offshore companies? Has the company recently registered shares for insiders, officers or consultants?
Shares that are registered, and those that are sold outside of the United States, may soon be sold. Investors need to be alert. A campaign to promote a company may be calculated to create a market so those selling shareholders can dump their stock.
5. Promoters
Research reports and recommendations from paid promoters are inherently biased. These one-sided company “profiles” are distributed by e-mail and fax to thousands of investors. In general, the reports have no credibility. They offer few details about the company’s operations, little information about management, and no independent financial information. They virtually never disclose the company’s lack of cash and revenues. Basically, these reports are worthless.
The individuals who issue these reports generally are compensated, in cash or stock, for their services. Often that fee is paid by an unidentified “third-party” who wants to generate investor interest so that they can dump their own shares.
These profiles undoubtedly will paint a rosy picture for the company and its stock. In the end, however, only the promoters and those unidentified third parties are likely to profit.
Investors should pay attention to these warning signs. There is no guaranteed way to avoid investment schemes (unless you don’t invest), but everyone can reduce his or her exposure to potential losses by remaining alert and informed. Remember, there is no substitute for information. Before you invest, investigate.
IF YOU HAVE QUESTIONS OR COMMENTS FOR STOCKPATROL.COM, CONTACT US AT editor@stockpatrol.com
Mr. Hartley Bernstein has been a featured speaker before securities industry and investor groups. Mr. Bernstein is admitted to practice in the State of New York and is a member of the bar of the United States Courts for the Southern and Eastern Districts of New York and the Court of Appeals for the Second Circuit.
Still, stock schemes continue to thrive, and to cost the public billions of dollars. Is there no solution? By the time regulators catch up with an illegal scheme, investors generally have lost money. That means investors must act as their own first line of defense, and avoid dubious investments in the first place. How can they do that? There are “red flags” flying that signal the possibility of a stock scam. Here is our short list. Five warning signs that scream out, “Stay Away!”:
1. The Absence of Public Reports
There are a host of business opportunities and attractive locations within the 50 United States. That’s why we see red – as in red flags – when a company is formed in the U.S., trades on a U.S. market, and has its only offices in Canada. We wonder why – and we think investors should also.
The fact is, there are plenty of legitimate companies in Canada – but they generally are engaged in a business that has ongoing operations within that country, or some other meaningful Canadian connection. When a Nevada corporation that trades on a U.S. Over-the-Counter market, has an office in Canada, but no Canadian operations, we can only wonder whether there are ulterior motives at play. If the Company’s principal investors are offshore corporation, we become even more concerned.
The scenario may suggest that someone is trying to operate outside the jurisdiction of U.S. regulators. The SEC and state regulatory officials have a difficult enough time enforcing the securities laws in the United States. Unscrupulous promoters are well aware that U.S. regulators have limited resources, and often receive inadequate assistance from Canadian officials who are focused on scams that target Canadian citizens.
3. Opportunism
Has a company recently issued a large number of shares to its officers, directors or consultants? Are significant blocs of stock held by offshore companies? Has the company recently registered shares for insiders, officers or consultants?
Shares that are registered, and those that are sold outside of the United States, may soon be sold. Investors need to be alert. A campaign to promote a company may be calculated to create a market so those selling shareholders can dump their stock.
5. Promoters
Research reports and recommendations from paid promoters are inherently biased. These one-sided company “profiles” are distributed by e-mail and fax to thousands of investors. In general, the reports have no credibility. They offer few details about the company’s operations, little information about management, and no independent financial information. They virtually never disclose the company’s lack of cash and revenues. Basically, these reports are worthless.
The individuals who issue these reports generally are compensated, in cash or stock, for their services. Often that fee is paid by an unidentified “third-party” who wants to generate investor interest so that they can dump their own shares.
These profiles undoubtedly will paint a rosy picture for the company and its stock. In the end, however, only the promoters and those unidentified third parties are likely to profit.
Investors should pay attention to these warning signs. There is no guaranteed way to avoid investment schemes (unless you don’t invest), but everyone can reduce his or her exposure to potential losses by remaining alert and informed. Remember, there is no substitute for information. Before you invest, investigate.
IF YOU HAVE QUESTIONS OR COMMENTS FOR STOCKPATROL.COM, CONTACT US AT editor@stockpatrol.com
Mr. Hartley Bernstein has been a featured speaker before securities industry and investor groups. Mr. Bernstein is admitted to practice in the State of New York and is a member of the bar of the United States Courts for the Southern and Eastern Districts of New York and the Court of Appeals for the Second Circuit.
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