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Telecommunications Technology Securities’ Fraud Alert

Investors should be very careful about investing in telecommunications technology ventures. Recently, the Securities and Exchange Commission has been receiving complaints about unregistered telecommunications technology securities being offered on sale.

Usual Characteristics of Fraudulent Securities:

  • They are not registered. The perpetrators usually claim that they are exempt from SEC's registration requirements.
  • They are supposedly issued by a partnership or a limited liability company in the telecommunications technology industry - e.g. service providers offering wireless cable and data services or manufacturers of specialized telecommunications equipment.
  • The company or the venture issuing the securities is also usually new or preparing for launch. The company is supposedly very near operational status. However, no information would be provided on the amount of capital the company must accumulate and the requirements it must fulfill to become fully operational.
  • The promoter or distributor of the security does not disclose information on its disciplinary history.
  • The securities offer very high yields yet very low levels of risk.
  • The costs of investment are not discussed in detail (if at all).
  • Very high cost of transaction. Investors are often surprised at the high costs involved in the purchase transaction. Most of their money actually goes to paying commissions and other one-time charges.
  • The materials provided to investors are lacking risk disclosures and a proper discussion on how capital raised through the issue would be used.
  • Investment must be made immediately or the opportunity would be lost. In other words, there's an underlying sense of urgency.

Usual target: Anyone can be offered these fraudulent telecommunications technology venture securities. However, retirement funds (e.g. IRA) seem to be a favorite target.

Usual MO: To perpetrate their scam, the fraudsters usually follow this modus operandi:

  • They advertise through television and radio media (using infomercials). They offer their securities for sale pretty much the way home shopping networks sell their special offers.
  • They send their target materials about their mythical company. Included in these materials is literature on how to invest and procedures on how someone can transfer his retirement funds (or funds from another account) to the new venture.
  • A toll-free telephone number is often provided with the ads and the written materials. Once a person calls, he'd be subject to a very convincing sales pitch over the telephone. He may also be called periodically or sent more brochures until he finally succumbs.
  • They often claim that the venture or the company has been granted patents or technology licenses. Such claims are usually false.
  • They usually imply approval and authorization from government agencies like the IRS.

    For instance, the promotional materials sent to target retirement fund owners stated that the investment is approved by the IRS for IRA investment. They also implied that the IRS itself encouraged the security issuer to contact the retirement fund owners and invite them to invest.

    This should be an automatic red flag to any investor. For one, the IRS would not state approval for any specific investment. Furthermore, IRS would not give a security issuer the contact information of IRA investors.

Protecting Yourself against Telecommunications Technology Investment Fraud

You can protect yourself from fraud by doing some checking before you invest in anything. The perpetrators of these securities fraud are very convincing. If you're not careful, you'll lose your lifetime savings.

If you receive an offer to invest in a new telecommunications technology venture (or any type of venture at all), do the following:

  • Make sure that the security is registered.
  • If you have a broker or an investment adviser you trust, talk to him about the proposal you've received.
  • If a company offering the investment claims licenses, check whether such claims are true or not.
  • If the proposal indicates that the investment is endorsed, approved or authorized by a government agency or any other authoritative organization, check with that agency or organization.
  • Check the registration status and disciplinary history of the security's promoter or distributor.
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