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Brokers Gone Wild (Part 3)

The Qualify Pitch, the Take Away Pitch, and the Test Drive  They are only three of the many sales techniques stockbrokers and scam artists will use to take your nest egg, or at least a good portion of it, away from you.  In each of the next three posts in this series, we will examine [...]

The Qualify Pitch, the Take Away Pitch, and the Test Drive  They are only three of the many sales techniques stockbrokers and scam artists will use to take your nest egg, or at least a good portion of it, away from you.  In each of the next three posts in this series, we will examine each of them in turn.  Soon-to-be unemployed and/or desperate brokers who turn to selling financial scams will likely use at least one - and probably all three - of them eventually.

The Qualify Pitch.  Humans put great value on exclusivity.  We like to think that we are part of a select group.  From the airline frequent flier club to the gated subdivision, being part of a select group makes us feel good.  Both legitimate salesman and scam artists use that desire.  A scam artist (including an otherwise honest broker who may not yet realize that what he is selling is a fraud) will use that desire to pique our interest in an investment.  Before I tell you about this opportunity, I will need to get some information from you to determine whether you are a qualified investor, he might say.  And we are hooked.  He could be selling a truckload of cow pies, and most of us would still want to know that we qualify to receive it. 

As with many techniques, this one is grounded in the world of legitimate investments.  Regulation D of the Securities Act of 1933 limits certain unregistered offerings to “accredited investors.”  The (faulty) idea is that wealthy people can look out for themselves and don’t need the protection of the securities laws as much as ordinary folks.  Therefore, the thinking goes, businesses ought to be able to raise money from rich folks without the expense of a full-blown registration.  

Many scam artists know more about the federal securities laws than general practice attorneys.  They will, therefore, know about Regulation D, and may even structure their scam as a Regulation D offering, which will allow them to ask those exclusivity questions and even point to the law if someone asks why those questions are necessary.  

Beware, therefore, any investment that a broker pitches as “open only to a select group of investors.”  It might be a legitimate Regulation D offering.  Or it might be the beginning of the end of the nest egg it took you decades to build.  Find out for sure through a QualifEye Analysis, or risk being only the most recent baby boomer or senior citizen to learn that his craving for exclusivity has made him part of a rather non-exclusive, and not-so-prestigious club - The Investment Fraud Victims’ Club.

 

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