Beware the investment pitch of the dialing salesman

April 26, 1991|By David Conn

You're just about to sit down to dinner when the phone rings. "Sir, I'd like to interest you in the investment opportunity of a lifetime," says the voice on the line. "It's a small California company that's come up with a revolutionary desalination process that's guaranteed to bring you a 120 percent annual return. But you have to act now."

Here's a piece of free advice from Maryland Attorney General J. Joseph Curran Jr.: "Hang up and go back to dinner."

Or better yet, he advises, call the Maryland Securities Division of the Attorney General's Office at 576-6360 in Baltimore. Complaints about suspected telephone investment scams to securities offices in California, Texas and Utah led to a major sweep of so-called "boiler room" operations this week, Mr. Curran said. The sweep brought almost a dozen arrests.

The California desalination company was one of the scams targeted in the raid, called the Multistate Law Enforcement Sweep (MULES). But just because the telephone operations were based in the West doesn't mean Marylanders are immune, according to Ellyn Brown, the state's securities commissioner. Maryland victims have turned up in each of two previous multistate raids in the last few years, she said.

The North American Securities Administrators Association (NASAA) estimates that "a staggering $10 billion a year" is lost to perpetrators of these bogus investments, Mr. Curran said. He took the opportunity of this week's raid to warn Maryland citizens about five of the latest phone scams:

* Pyramid schemes, also known for a particularly notorious operator in the 1920s named Ponzi. "In pyramid swindles," Mr. Curran said in astatement, "consumers are enlisted to bring in friends, relatives and neighbors in exchange for a share of the newcomers' investment."

Because of the exponential demand for new investors, the illegal pyramids inevitably collapse, typically leaving only the originator and a few others the wealthier.

* Lotteries that entice investors with promises of winning one of the Federal Communication Commission's ongoing lotteries for

licenses to operate satellite-driven TV systems.

* International investment deals, often mentioning foreign currency fluctuations and mysterious financial backers from the Middle East or Asia. They have netted about $1.1 billion in 1988 and 1989 from U.S. investors, according to NASAA.

* Horizontal drilling, the latest version of oil and gas investments. This involves a legitimate new technology that is being used by promoters touting "oil fields of dreams," Mr.

Curran said.

* Loan brokers who charge upfront fees for loans that never materialize. These operators have been able to capitalize on the recession and the problems of would-be homebuyers and small businesses looking for cash.

The phenomenon of telephone boiler-room operations started years ago in the West primarily with petroleum-related investments, Mr. Curran said.

But with the proliferation of inexpensive long-distance services and computerized auto-dialers, they have spread to other states. Ms. Brown has a sensible rule of thumb for people who receive calls touting instant wealth.

"If it sounds too good to be true, it is," she said. "You should be naturally wary."

The best way to check the legitimacy of telephone solicitations is to call the state securities commissioner and find out if the caller is licensed to operate in the securities industry, if his or her company is licensed, and if the security being offered for sale is registered with the state.

One shortcut, Ms. Brown said, is to ask for the caller's Centralized Registration Depository number, which every licensed broker in the nation must have, or at least the Social Security number, which the state can use to track down the caller.

"You'll probably get taken off the list," she said.

For a free copy of a brochure called "Top Five New Telemarketing Scams," write to: Maryland Division of Securities, Office of the Attorney General, 200 St. Paul Place, 20th floor, Baltimore, Md. 21202. Attn: Telemarketing Scams.

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