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# Worthless Stock: How to Avoid Doubling Your Losses

Con artists across the globe have stepped up their efforts to rip off investors, especially non-U.S.   residents who have lost money in the U.S. securities markets.  While it’s natural to want to recoup one’s   losses as quickly and as fully as possible, the SEC warns investors to be extremely skeptical of offers to   exchange worthless or poorly performing stocks for blue chips or “hot” performers.

Worthless stock is typically just that — worthless.  And anyone who promises a quick way to recover   from a bad investment is probably just lying to you.  We encourage you to thoroughly investigate  *any*   investment opportunity, as well as the person promoting it, *before* you part with your money.  This is   especially critical if you are a non-U.S. investor seeking to invest in U.S. stocks — or if you learn   about the opportunity over the telephone from a broker you don’t know.  The “broker” may well be a con   artist, and the deal may be a dud.  Remember, if an offer sounds too good to be true, it probably isn’t   true.

This alert tells you how to spot potential “stock swap” scams, how to evaluate the offers you hear   about, and where to turn for help.

## What to Watch Out For

Although fraudsters use a wide variety of techniques to carry out their “worthless stock swap” scams, most of these frauds boil down to a predictable formula:  a persuasive pitch, which nearly always contains false assurances of legitimacy, followed by demands for money.  Here are some “red flags” to avoid:
> 
 **Aggressive Cold Calls    from "Boiler-Rooms"** — Con artists posing as U.S. or United Kingdom brokers will first identify 	investors who have lost money investing in “microcap” stocks, the low-priced and thinly traded stocks 	issued by the smallest of U.S. companies. Operating from remote    boiler-rooms, they then mount an aggressive cold calling or emailing 	campaign, focusing their pitch on loss recovery.  They might offer to swap a poorly performing stock 	for an established, blue chip stock — or they will claim that their firm or an anonymous “client” wants 	to purchase the shares directly.    
 **Impressive Websites Serving as Fronts for Virtual Offices** — To make their schemes appear convincing, 	fraudsters will invite you to visit “their” website — which will have pages of detailed information and 	perhaps a photo or biography of the broker.  But all too often the site will be nothing more than a 	fraudulent copy of a legitimate firm’s website — with changes made only to the name and contact 	information.  The con artists will adopt fake yet familiar-sounding names and operate out of virtual 	offices, using phony addresses, remote mail drops, and redirected phone and facsimile numbers to carry 	out their scams.
 **Self-Provided References** — Knowing that regulators encourage investors to investigate before they 	invest, fraudsters often pretend to do the same.  They will falsely assure you that the investment is 	properly registered with the appropriate agency and purport to give you the agency’s telephone number 	so that you can verify that “fact.”  Sometimes they will give you the name of a real agency — other 	times they will fabricate one.  But even if the agency does exist, the contact information invariably 	will be false.  Instead of speaking with a government official, you’ll reach the fraudsters or their 	colleagues — who will give the company, the promoter, or the transaction high marks.    
 **Claims of Government “Approval”** — Another ruse fraudsters use to appear credible involves 	the misuse of federal agency seals, including the seals of the SEC and the Federal Trade Commission.  	They will copy the official seal from the regulator’s website and use it to create fake letterhead for 	a fictitious letter of approval.  But you should know that the SEC and FTC — like other state and 	federal regulators in the U.S. and around the world — do not “approve” or “endorse” any particular 	stock transactions or “loss recovery” programs.    
 **Advance Payment Requests** — Regardless of how the fraudsters pitch their offers to “help”, 	there’s always a catch.  Before they will complete the deal, they first will ask for an upfront 	“security deposit” or “margin payment” — or claim that you must post an “insurance” or “performance 	bond.”  The minute you pay the advance fee, the fraudsters nearly always disappear — leaving you with 	new losses.  If you seem willing to make *further* payments, the con artists may instead keep asking for 	more — falsely claiming that the market price of the security has changed or that the payments will 	cover additional fees, taxes, bonds for the courier service, or other similar expenses.  Only when you 	finally run out of patience or money to chase your losses do the fraudsters disappear for good.  How to Protect Yourself
Regulators often refer to worthless stock scams as “recovery room operations,” “advance fee schemes,” or “reload scams” because the perpetrators prey on individuals who lost money once and are willing to invest even more in the hope of recovering their losses.  Here are several ways to arm yourself against these thieving opportunists:

 **Look Past Fancy Websites and Letterheads** – Anyone who knows how to “cut and paste” can create 	impressive, legitimate-looking websites and stationery at little to no cost.  Don’t be taken in by a 	glossy brochure, a glitzy website, or the presence of a regulator’s official seal on a web page or 	document.  The SEC does not authorize private companies to use our seal.  If you see the SEC seal on a 	company’s website or materials, think twice — and then think twice again.    
 **Be Skeptical of Government “Approval”** — Like most regulators around the world, the SEC does not 	evaluate the merits of any securities offering, nor do we determine whether a particular security is 	a “good” investment.  Moreover, we never endorse specific firms, individuals, products, or services.    
 **Deal Only with Real Regulators** — Don’t be fooled by those who tell you how and where to check out 	their credentials.  Go straight to a *real* regulator for help.  Here are the URLs you’ll need to find 	your regulator:  **International Regulators** -- http://www.iosco.org/lists/       **U.S. Regulators --**-  **SEC** -- http://www.sec.gov or http://www.sec.gov/contact.shtml         F
INRA
 -- 
http://www.finra.org
  
State Regulators
 -- 
http://www.nasaa.org/
 or      
http://www.nasaa.org/QuickLinks/ContactYourRegulator.cfm

**Caution:**	If your contact provides any of these links electronically (in an email or on a website), do **not** simply click on those links. **Type the *full URL* into your web browser*yourself*.**  Even though the URL looks right, a fraudster’s link can take you to a very different destination.

 ******Independently Determine Whether the Offering Is Registered** -- In general, all securities 	offered in the U.S. must be registered with the SEC or qualify for an exemption.  You can see whether a 	company has registered its securities with the SEC and download its disclosure documents using our     EDGAR database.    
 ******Check Out the Broker and the Firm** – Always verify whether the broker and the firm are properly  	licensed to do business in your state, province, or country.  If the person claims to work at a U.S.  	brokerage firm, use FINRA’s  BrokerCheck website or call FINRA’s Public Disclosure Program hotline at  	(800) 289-9999.  If the person works elsewhere, contact the  securities regulator for that country — and  	also for your home country, if more than one country is involved.    
**Tip:**
    Several international regulators list on their websites the names of    unlicensed firms or entities that have allegedly targeted their citizens for    worthless stock scams and other frauds.  Some sites that presently    maintain these lists include:    -  Australian Securities and Investment CommissionBermuda Monetary AuthorityGuernsey FSCHong Kong Securities and Futures CommissionIndonesian Capital Markets Supervisory Agency (BAPEPAM)Irish Financial Services AuthorityIsle of Man FSCItalian CONSOBNetherlands Authority for Financial MarketsNew Zealand Securities CommissionPhilippines SECSpanish CNMV (click on "Investor Alerts" under "Cautions")      Thailand Securities and Exchange CommissionUnited Kingdom Financial Services Authority
Please note that the SEC does not maintain or control these lists and        cannot vouch for their accuracy.         	           
 **Independently Verify References** – Never rely solely on references given to you by a broker you’ve 	never worked with before.  The “international organizations” or “satisfied clients” 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. would not 	ask you to send your money to a non-U.S. bank — or to a U.S. bank for further credit to another bank or 	entity.  In fact, a U.S. broker probably would not ever ask you to send payment to their bank at all.    Where to Turn for Help
If the case appears to involve a U.S. broker, please send your complaint in writing to the SEC using our  Online Complaint Center. Be sure to include as many details as possible, including the names, addresses, telephone or fax numbers, and e-mail addresses or websites of any person or firm,the dates of each contact, and information on any specific representations andwire instructions provided by the broker.

Because many investment scams occur entirely outside the U.S., the SEC may not have jurisdiction to investigate and prosecute wrongdoers — even if the fraud involves stock issued by a U.S. company. If you run into trouble, contact the  securities regulator for your home country and also the country where the broker does business.
How to Get More Information
If you want to invest wisely and steer clear of frauds, you must get the facts. Never, ever, make an investment based solely on a promoter's promises over the telephone or what you see on the Internet — especially if the investment involves a small, thinly-traded company that isn't well known. And don't even think about investing on your own in small companies that don't file regular reports with the SEC, unless you are willing to investigate each company thoroughly and to check the truth of every statement about the company.

For more information on investing wisely, please visit the  Investor Information section of our website.

 
						Modified:																			Oct. 17, 2005					STAY CONNECTEDTwitterFacebookRSSYouTubeFlickrLinkedInPinterestEmail Updates-  Site Map 
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