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Brokers Gone Wild (Part 5)

In Part 5 in our review of how otherwise honest stockbrokers wind up selling financial scams, we are looking at a proven sales technique known as “The Test Drive,” and what it looks like in financial scams.
“You mean I can earn 10 percent per month in this investment?” you say.  “I don’t’ believe it.”  The scam [...]

In Part 5 in our review of how otherwise honest stockbrokers wind up selling financial scams, we are looking at a proven sales technique known as “The Test Drive,” and what it looks like in financial scams.

“You mean I can earn 10 percent per month in this investment?” you say.  “I don’t’ believe it.”  The scam artist is thrilled to hear it. 

“Well,” says the scam artist.  ”There are plenty of people clamoring to get into this thing, but I like you and don’t want you to lose this opportunity.  So, I’ll tell you what.  The minimum investment is $100,000. If I can find someone willing to put in just $90,000, I’ll ask the trader if I can pool those investments and get you in for $10,000 so that you can see how the program works.”

You have already started calculating how much you could make in an investment that pays 10% per month even if it works for just a few months.  So you say, “OK.”

A few days go by and then the salesman calls up to say that he has found someone willing to invest $90,000 instead of the minimum $100,000.  You give him a check for $10,000 and count the days off of the calendar.  In thirty days you receive a check for $1,000.  Thirty days later, you receive another, and another thirty days after that.  And you are hooked.  You’ve seen it with your own eyes - taken a test drive and like the way it handles. 

You kick yourself for not putting in the full $100,000 initially.  You calculate the money you ‘lost’ by being cautious, and you ask the salesman whether you can jump in for the full $100,000.  “I’ll see if we’re still accepting subscriptions,” he says.  “There is a maximum we can raise and I have to check to see whether we’ve reached it.”  You pray that you are not too late.

Finally, the word comes back that the investment is almost fully subscribed but that you can just get in under the wire.  You write the check for $100,000 and think about how lucky you are.  You’ll likely get a check for $10,000 the first month.  You may even blow it on an extravagance, sure that those checks will keep coming.  You’ve seen it with your own eyes after all.  But have you? 

The checks will soon stop coming.  The salesman will have an excuse, and promise that the check will arrive soon.  It might, but most likely not.  You’ve been taken by a Ponzi scheme.

But what about the test drive?  How could that work if the underlying profit generating machine was not legitimate?  What you will eventually come to realize, probably from a Receiver appointed to clean up the mess, is that the $1,000 payments you received in the test drive were not profits, but your own money, or money stolen from someone else. 

Do not believe your eyes.  Instead believe the eyes of a former SEC Enforcement Branch Chief who will see things that you could not possibly see, and will notice omissions that you could never recognize.

 

2 Responses to “Brokers Gone Wild (Part 5)”

  1. George Sutton says:

    Is the present global economic crisis making more people prone to enter such scams.What information can be found that can inform people what is legit and not legit.Is there any government agencies that these scams can be reported too?Should there be new legislation?

    george sutton.

  2. Investor's Watchblog says:

    Hi, George. There will be more scams out there. Thousands of brokers will be hitting the street needing something to sell. The most successful scams will promise safety and a return only marginally above market rates. They might be structured as CDs. Investor’s Watchdog is the only resource available for thoroughly investigating a propsective investment or a broker. In the U.S. you could report scams to the Securities and Exchange Commission. In the UK, it is the Financial Services Authority. The legislation is fine. What we need is better funding and dramatically increased staffing of the enforcement agencies. Thanks for the comment. Keep the coming. Peace, Pat

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