PROTECTING YOURSELF

The Federal Trade Commission’s recent decision to create a nationwide “Do Not Call” list is certain to discourage many aggressive telemarketers – but not all. (See Don’t Call Us). Stockbrokers, particularly the shady variety who use telemarketing schemes to promote obscure companies and pump up the price of worthless stock, are unlikely to be deterred by the threat of an $11,000 fine. To them, it’s just another cost of doing business.

Unfortunately, it’s not always so easy to distinguish the legitimate broker from his or her counterpart. Cold calling can be a legitimate method of reaching potential clients, but it can also be an instrument of securities fraud. Problem is, the accomplished telemarketer is well-trained, knows which buttons to push and has a ready answer for your every question. Still, there are a few simple steps that make it easier to identify the legitimate broker.

1. Start with this basic rule -- if it sounds too good to be true -- it is. If a stranger on the phone promises you a “sure thing” hang up and go back to work, to dinner or to bed, as the case may be. Most dishonest telemarketers, however, will not be quite so transparent. Do not ever make an investment during the initial telephone call or give the caller such personal information as your credit card or checking account number. Honest brokers require written authorization before they can withdraw money from your bank or charge your credit card.
2. If you insist on taking the call, listen carefully. Does the caller ask you about long-term objectives, investment history and risk tolerance? Legitimate brokers will ask these questions before making any recommendation. Take notes, and ask for detailed written materials that support the broker’s claims.
3. Obtain complete, written information about any prospective investment, including annual reports and audited financial statements. Review the company’s history. Has it been making money? Does it have revenues? If you are investing in a public offering, read the prospectus before you agree to buy. If you do not understand the documents, review them with an accountant or attorney that you know and trust. If no documents are available, steer clear of the investment. Most public companies files quarterly financial statements and independently audited annual financial reports with the Securities and Exchange Commission. Those documents are available to the public through the SEC’s Edgar System. (They can be found online by going to www.sec.gov). If a company does not file audited financial reports an investor cannot possibly verify its financial state or the broker’s representations. As a rule of thumb, if you cannot obtain independent information about a company, including audited financial statements, err on the side of caution, and find another investment.
4. Make sure the telemarketer identifies his or her employer. If the name of the firm sounds familiar, be cautious. The Morgan Group is not Morgan Stanley. A.S. Goldmen was not Goldman Sachs. Clever, but duplicitous, brokers choose firm names that sound like better established firms. In reality, they have no relationship with the more established firm. When they recite their “distinguished” track record, don’t be confused. Once you obtain the name of the brokerage firm, check with the NASD and your state securities regulator to see if complaints have been filed against the firm by customers or regulators.
5. Learn to say no, and mean it. Then hang up. Aggressive telemarketers are oblivious to the word no. As long as they keep you on the phone they have a chance to close the deal, so they will use every conceivable technique to keep you on the line. They can be alternately charming, funny, rude, profane or abusive.
6. Does the salesperson’s approach seem too calculated? Does the salesperson’s demeanor change if you hesitate to invest? Does your reticence tend to make them more pushy, or rude? If the answer is yes, end the conversations and the relationship.
7. Even cold callers are required to play by the rules. In the securities industry this means that they can only call potential new customers at home between the hours of 8:00am and 9:00pm. Unfortunately, they are permitted to call you at work at any time of the day. But at least a good receptionist, switchboard operator or secretary will be able to screen those calls. Here’s the key. When a stranger calls the secretary should always take a message rather than putting the call through to you directly. Nine times out of ten the telemarketer will decline to leave a name or number, electing instead to try you again later. He or she may even try to be creative, pretending to be a friend or client, or feigning an emergency. So always ask who’s calling before you pick up the line.
8. When a broker does reach you on the phone, whether at home or at work, they are required to identify themselves and their firm. Be sure you get the exact name of the firm and a telephone number for the caller. If you decide to continue with the conversation pay careful attention. Make sure the broker asks you about your investment background and goals. Once you are satisfied that the salesperson has made a proper, thorough inquiry of your needs, conduct your own interview. Ask the broker’s background, investment philosophy and specialties. Then check out the broker. The NASD will tell you whether a broker is registered to sell securities in your state, and if the broker (or his or her firm) has been named in customer arbitrations or regulatory proceedings. (For this information visit the NASD online site at www.nasd.com). Once you are satisfied that the broker is properly licensed, ask for written information on the brokerage firm. Get references, and call them.
9. Make sure that every investment you are considering has been registered with the Securities and Exchange Commission or your state. If you are buying a stock, find out whether it trades on a recognized stock exchange and how easy it is to get price quotes. Find out if there is an active market for the stock. Before you buy any stock (other than stock in an Initial Public Offering) you should follow its daily progress and watch its price movement. The daily activity of most listed securities can be found in the Wall Street Journal and other major newspapers. Penny stocks are a different story. Few newspapers publish price and volume information for penny stocks. Investors who want to follow these securities can find the information by using several online financial tracking services, including Yahoo! Finance (http://finance.yahoo.com) and the website maintained by the National Quotation Bureau (NQB) (www.pinksheets.com).
10. Make sure you sign up for the national “Do Not Call “ list as soon as it becomes operational. StockPatrol.com will continue to update readers on enrollment information as it becomes available. Remember, if you do not want to be bothered by a stranger on the phone you have the absolute right to be left alone.

Or you can take the easy road when the phone rings with a telemarketing call, and just hang up.




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