Investor, watch out for unsolicited investment offers, after receiving complaints about aggressive telephone stock promotions. Typical complaints describe high-pressure sales tactics and verbal promises that the stock will soon be listed at a higher price.
High-pressure sales tactics are a warning sign to investigate before you invest; a great investment opportunity should stand up to the test of further research. Federal securities law is designed to maintain fair and efficient capital markets. Unfortunately, unscrupulous individuals closely scrutinize the laws, looking for new ways to exploit unsuspecting investors.
One example of this is the "pump and dump" schemes that operated in the late 1990's. These operations used aggressive sales tactics to sell penny stocks to investors at inflated prices. After maximizing their own profit by creating an artificial market for the stocks, they left those same investors holding worthless shares.
The penny stock dealers defended their actions by pointing out that sellers are free to ask any price for their securities on the open market - it is up to the buyer to decide what price they want to pay. While this philosophy is a cornerstone of the free market economy, these companies were not upholding the spirit of the law.
The "pump and dump" operators were "not acting in the public interest".
In a more recent example, the International Equity Regulation Department has received complaints about abuse of the "Accredited Investor" exemption. Generally, a prospectus must be issued before a registered representative can sell shares to the public; however there are exemptions to these requirements. The exemption allows a company to sell to qualifying investors without a prospectus.
Some unscrupulous salespeople have persuaded investors who do not meet the criteria to sign a form stating they are accredited and invest in high-risk ventures.
They do this by suggesting that the government unfairly allows wealthy people to take advantage of the really great investment opportunities. The reality is that the exemption rule is in place to make it easier for small businesses to access capital, and provide protection to investors.