by Lawrence C. Melton, Esq., [email protected]
THE HAYES LAW FIRM, www.dhayeslaw.com, (TOLL FREE, 1-866-332-3567)
Here is a list of common tactics brokers use during the sales pitch when they are trying to defraud investors:
The "Phantom Riches" Tactic--dangling the prospect of wealth, enticing you with something you want but can't have. "These gas wells are guaranteed to produce $6,800 a month in income." NASD Investor Alert: Fraud Fighting 101: Smart Tips for Older Investors.
The "Social Consensus" Tactic--leading you to believe that other savvy investors have already invested. "This is how Mr. X got his start. I know it's a lot of money, but I'm in this stock and so is my mom and half her church--and it's worth every dime." NASD Investor Alert: Fraud Fighting 101: Smart Tips for Older Investors.
"Affinity Fraud" -- occurs when a stock broker or financial adviser gains the trust of the customer by using his status as a member of a group with which the customer is also affiliated. The NASAA (North American Securities Administrators Association) has identified "affinity fraud" as a serious threat to investors. During her March 29, 2006 testimony before the Senate, NASAA President, Patricia Struck outlined several cases of senior investment fraud handled by NASAA members, including one case in which a trusted church official operated a Ponzi scheme that victimized a total of 117 friends, relatives and parishioners (mostly seniors) of over $6 million.
The "Reciprocity" Tactic--offering to do a small favor for you in return for a big favor. "I'll give you a break on my commissions if you buy now--half off." NASD Investor Alert: Fraud Fighting 101: Smart Tips for Older Investors.
"PALTERING": "The deliberate attempt to create a misimpression in someone by means other than by uttering a literal falsehood." Schauer, Frederick and Zeckhauser, Richard, Faculty Research Working Papers Series: Paltering, John F. Kennedy School of Government - Harvard University (Feb. 2007), p.9 retrieved from http://ssm.com/abstract=832634. How do you differentiate between a lie and a palter? "Lying occurs when truthfulness is expected, but the person in question presents factually incorrect information with the intent to deceive....Paltering also involves an intent to deceive where there is an expectation of truthfulness, but the palterer provides partially truthful information -- leaving out relevant details or context (i.e., innuendo, or "lying by omission") -- or does not correct the misunderstandings or misinterpretations of the person being deceived." Blum, Bennett, MD, Lying and Paltering, Texas Lawyer, TL E-alerts/Litigation, 05.09.07. http://www.tlealerts.com.litigation/18.htm
The "Scarcity" Tactic--creating a false sense of urgency by claiming limited supply. "There are only two units left, so I'd sign today if I were you." NASD Investor Alert: Fraud Fighting 101: Smart Tips for Older Investors.
The "Source Credibility" Tactic--trying to build credibility by claiming to be with a reputable firm or to have a special credential or experience. "Believe me, as a senior vice president of XYZ Firm, I would never sell an investment that doesn't produce." NASD Investor Alert: Fraud Fighting 101: Smart Tips for Older Investors. The source credibility scam is a growing trend in the securities and insurance industry. Increasingly, Financial Advisers are obtaining phony official-sounding titles in order to trick seniors citizens. This scam has become so widespread that last month the U.S. Senate opened an investigation of the source credibility investment scam perpetrated against senior citizens. (See Charles Duhigg, Senate Panel Investigates How Insurers Sell to Elderly, July 20, 2007). HOW DOES THE SOURCE CREDIBILITY SCAM WORK? STEP ONE: A financial adviser working for an insurance company will pay a certain amount of money for a correspondence course to obtain an official sounding title. The course might take a couple of days or maybe a couple of hours. Then the adviser takes an easy multiple choice test and obtains the phony title. STEP TWO: The financial adviser will use one of the above impressive-sounding titles to trick senior citizens into believing he has credentials and expertise. In reality the adviser may be an inexperienced novice in this area who simply took a phony on-line correspondence course. STEP THREE: Once the adviser has fooled the senior into believing he is an expert, the adviser will earn big commissions by placing the senior in a bad investment, such as a deferred variable annuity.
Comments