High Pressure Sales

Some disreputable brokerage firms will push what is called a "house stock". A "house stock" is essentially a stock that the firm wants people to buy in order to artificially increase its value. Once the price of the stock is high the disreputable broker will tell "preferred" customers to sell, while letting the other customers who are not in the "loop" suffer the resulting collapse.

These "house stocks" are often penny stocks with low revenues and low earnings and are usually not carried by any exchange except the NASDAQ over-the-counter (OTC) market. Often they are pushed with "boiler room" tactics and billed as "can't loose" stocks. Inexperienced investors are particularly susceptible to the "hard sell". Pushy sales tactics are not alone a crime, however, if a stock broker has deliberately withheld or misrepresented the material facts in the recommendation or sale of a stock there is a good chance he is in violation of trade laws.

Touting

"Boiler room" firms generally lure clients in by initially making very safe and obvious recommendations. In the first series of calls they will recommend small investments in reputable established companies with a steady and rising stock value. Once they've established the clients trust they will typically refer the client to a "senior account executive" who has "more experience and expertise". In reality the "senior account executive" is simply a seasoned, high pressure sales person who will attempt to sell the client on "house stocks". From that point forward, the firm will only recommend "house stocks". This illegal technique is called touting.

Hot Tips

A broker may not recommend a stock unless he has some legitimate basis to believe that it is in fact a good investment. It is illegal for the broker to withhold critical information from the client. If a broker recommends a stock to a client based on insider's trading information it is possible that this also could be considered fraud, whether or not the "hot tip" is real or false. In either case the broker would be in volition of insider's trading rules. Investors who feel that their broker has violated insider's trading rules should contact a securities lawyer as soon as possible to avoid being implicated and to learn their legal rights.

How to get out

Whenever a client is dealing with a firm or a broker who is making exaggerated predictions about the stocks they are promoting, using high pressure sales techniques or refusing to allow the client to sell their own stocks, it is likely that the broker is a defrauder and the client should place their money elsewhere. If damage has already occurred, the wisest course of action is for the client to withdraw all their monies from that firm and seek legal help. Securities lawyers are skilled dealing with this type of situation and can help the mistreated client get their money back.

Pump and Dump - Internet stock fraud

Another type of stock fraud seen frequently in the last few years is a technique called "pump and dump". It works as follows: a fraudulent company floods the internet with misinformation via spam mail and message boards promoting the small company. If the fraud works it will cause a surge in the price and volume of the stock allowing the defrauders to sell their shares at a profit. Meanwhile the investor, who was misled by illegal misinformation, stays in and gets hammered. The defrauder will literally have "pumped" up the stock and "dumped" it.

If you believe you have been victimized, contact us.

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