We encourage all investors to thoroughly investigate any investment opportunity and the person promoting it before you part with your money—especially if you are a non-U.S. investor seeking to invest in U.S. stocks. This is particularly important if you learn about the investment on the Internet or hear about it over the telephone from a broker you don’t know.

The recent globalization of world financial markets and the strength of the U.S. securities markets have fueled a strong demand by foreign investors for U.S. stocks. But this increased appetite has, in turn, spawned new types of fraud. This alert describes how some of these scams work, provides tips on how to avoid them, and tells you where to find help.

WHAT THE FRAUDS LOOK LIKE 

Many of the new frauds target investors worldwide who purchase "microcap" stocks, the low-priced and thinly traded stocks issued by the smallest of U.S. companies. If the stock price falls, the fraudsters swoop in, falsely claiming that they can help investors recover their losses—for a substantial fee disguised as some type of tax, deposit, or refundable insurance bond. Here’s how some of the most common schemes work:

Aggressive Sales
Dishonest brokers purchase blocks of stock from U.S. issuers at a discount. They then use high-pressure sales tactics to persuade non-U.S. investors to buy, often at inflated prices. Once the brokers have finished selling the stock, the price collapses with investors vulnerable to substantial losses.

Absentee Brokers
For many investors, the scam ends here. When they attempt to contact the individuals who sold the worthless stock, the investors discover that the brokers have disappeared.

Advanced Fee Schemes—
For other investors, the fraud takes on a new twist. Fraudsters posing as legitimate U.S. brokers or firms offer to help the investors recover their losses by exchanging the worthless stock for an established, blue chip stock or by purchasing the stock outright. But investors must first pay an upfront security deposit or post an insurance or performance bond.

Further Demands for Money
As long as an investor appears willing to make payments, the fraudsters will keep asking for more, falsely claiming that the payments will cover fees, taxes, bonds for the courier service, or other similar expenses.

HOW TO AVOID GETTING BURNED 

Ask tough questions about the opportunity and the people promoting it before you invest.

Are the Broker and the Firm Licensed? 
Contact your securities regulator to find out. The International Organization of Securities Commissioners (IOSCO) provides contact information for most securities regulators. Be sure to ask whether the broker or the firm has a history of complaints. If the person claims to work with a U.S. brokerage firm, visit FINRA.  

Is the Investment Registered with SEC? 
Check the SEC's EDGAR database to find out. But always remember the fact that a company has registered its securities or has filed with the SEC doesn't guarantee that the company will be a good investment. Also, the fact that a company hasn't registered doesn't mean the company is a fraud.

Where Does the Stock Trade? 
Many frauds involve microcap companies whose stocks are quoted in the pink sheets or on the OTC Bulletin Board. These companies generally do not meet the minimum listing requirements for trading on a national exchange, such as the New York Stock Exchange or the Nasdaq Stock Market. Companies quoted in the pink sheets generally do not file reports or audited financial statements with the SEC. It can be very difficult for investors to find reliable, unbiased information about microcap companies. 

What Is the Stock Price in the U.S.? 
Before you purchase any U.S. stock, be sure to independently confirm its current U.S. trading price. Dishonest brokers may charge you a much higher price, assuming that you’ll never check. 

How Can I Independently Research This Opportunity? 
Always ask to see written information about the company, including a prospectus and recent financial statements. Be sure to research the company on your own. 

Look Past the Name
Some fraudsters illicitly use the names of legitimate brokers and brokerage firms. Be sure to compare any address a broker gives you with the address you obtain from your securities regulator or the FINRA. If they are not the same, you may be dealing with a fraudster.

Independently Verify References
Never rely solely on the references given to you by a broker you’ve never worked with before. The satisfied clients or international organizations they suggest you contact may well be part of the scam.

Be Wary of Unusual Banking Instructions
Most reputable brokerage firms in the U.S. use U.S. banks and would not, for example, ask you to transfer money to a U.S. bank for further credit to a non-U.S. bank.
 

Please note that OldStocks.com does not sell investments or investment advice.  It is highly recommended that you contact a registered investment professional for these services.   Items sold in our catalog are cancelled or obsolete, and only sold as collectible items.