Some stockbroker firms have "house stocks" that they are contracted to sell or that they use their stock brokers to sell to artificially boost the price of the stock.These "house stocks" are often with low revenues and negative or low earnings.
The house stocks are sold through high-pressure "boiler room" sales tactics with exaggerated claims of potential stock price increases.
A stockbroker may be liable to a customer if he misrepresents material facts or fails to disclose material facts to the investor in the sale or recommendation of an investment.
How Stockbroker Illegal Sales Schemes Work?
Certain organizations and their stockbrokers generally establish credibility through misrepresentations about themselves and their organizations.
In the initial series of calls, these brokers will make a relatively small investment recommendation in a well-known reputable company with a steady and rising stock price.
Shortly after this initial transaction, it is not uncommon for the first broker to refer the client to a "senior account executive" that has the "experience and expertise" to handle the client's accounts.
In reality, the second broker is generally a seasoned, skilled, high-pressure salesperson. After the initial transaction, the stockbrokers in these organizations will only recommend house stocks.
The Telephone Rings ...
It happens to all of us. The telephone rings as you're sitting down to dinner, relaxing with family or friends, or putting the kids to bed. A stranger is selling something. Is there help or trouble on the line?
It's Known as "Cold Calling"
For many businesses, including securities firms, cold calling serves as a legitimate way to reach potential customers. But sometimes serious trouble and financial losses await you at the other end of the line.
Dishonest brokers may pressure you to buy a bad investment, or the investment might be a scam.
What Are Signs of Trouble?
Honest brokers use cold calling to find clients for the long term. They ask questions to understand your financial situation and investment goals before recommending that you buy anything.
While you may find their cold calls annoying, honest brokers who follow the cold calling rules are acting within their rights.
Dishonest brokers use cold calling to find "quick hits." Some set up "boiler rooms" where high-pressure salespeople use banks of telephones to call as many potential investors as possible.
These strangers will hound you to buy stocks in small, unknown companies that are highly risky, or sometimes, part of a scam.
Aggressive cold callers speak from persuasive scripts that include retorts for your every objection. As long as you stay on the phone, they'll keep trying to sell. And they won't let you get a word in edgewise.
