Last week we had another potential client walk in the door who had physical share certificates. He was trying to sell some shares for a company listed on the NASDAQ. He said his broker couldn’t help him and had since disappeared and was hoping we could help him.
Hmmm…
I have to confess, I hate these conversations. Sadly, I've had a few over the years.
Our new friend had been scammed. His money is gone. He has some beautiful 'share' certificates from a “broker” in Singapore or Japan to remember the occasion.
So as a warning to the investing public, here is a scenario so you see the warnings signs before you, or a friend, lose their shirt.
The call from the stockbroker with research skills.
Leo* was working away in his job as a quantity surveyor, when he received a phone call.
Not another financial adviser! But Mike Glass was slightly different. He didn’t try to book a meeting for financial advice. He introduced himself as a stock-broker based in Tokyo Japan. He researched hidden gem stocks on the Nasdaq to build his client base.
Not convinced? Here is a tip. Now just watch.
Leo didn’t believe it for one second. So Mike passed his tip on anyway.
“I’m good at what I do. AllRocket Co has just signed a deal with Walmart. They are probably going to rise 30-50% over the next week. I know you don’t believe me, so just watch the stock and you’ll see. Put ROCKE2 into your watch list and stay tuned. You’ll see I’m right.”
The stock rose 65% in fact. Mike was right somehow. “Next time you should believe! Next time I call, you need to listen OK?”
Leo wasn’t convinced. It all seemed very weird.
Another Tip. Another Win.
A few weeks later another tip. This time it was up 71% in a week. Leo still didn’t act. Still 71% was a very nice return. Imagine if he had put $30,000 USD in savings for 71%! What about both? He was now curious and even visited the website of the stock-broker. It looked pretty standard. The company seemed based in a decent part of Tokyo from what he could remember visiting a few years back.
The final push. Are you man enough to decided!?
A few weeks later Mike called back again. He challenged him “I’ve been right twice now and how many gains have you missed? Are you a man or do you let your wife cut your lunch and hold back your dreams? Are you man enough to make a decision!?” Leo decided to act.
The money disappears forever.
Leo decided to act and got Mike to send through the application form. He sent it in with his passport, application form and sent $10,000 of his money to the brokerage account in Singapore. Little did he know that was the last he saw of his money.
The broker disappears. Was never in Japan as he claimed.
A few weeks later the mail arrives. Leo is thrilled. His shares are up 55% and he wants to take profits. The broker then stalls, pushing for further investments (see follow-on cons below). Let’s assume Leo has no more money however and is frustrated. He asks him to sell his shares now. Frustrated he sends demanding emails, but there is no response to emails or phone calls.
Finally he asks an old friend living in Tokyo to visit the office and ask questions in person. But the office address mentioned has a Japanese advertising agency. They have never heard of a stock broking company or Mike Glass.
So what happened? It's a pump and dump.
Basically this is a pink sheet scam. Also called a pump and dump and is old as the hills. In fact this scam was one of the reasons the SEC was originally invented, way back when.
Here are links on US Today or Wikipedia’s explanation of “pump and dump” which is the same trick. Or just google Pink sheet and see what comes up.
The company isn’t actually listed on the Nasdaq. Pink sheets or OTCBB (Over the counter bulletin board) are actually not a true listing yet are still part of Nasdaq’s information services. The companies don’t file returns with the SEC and the stock prices reported are purely what the company reports to Nasdaq. The perfect vehicle for a scam then.
The "broker" controls the company's listed details and trades.
The con artists set up a holding company in the US or buy a pink sheet listing by reverse takeover. They build a website for the fake company and then contact NASDAQ. It isn’t expensive and many scammers probably have several they manipulate to enable the multiple call backs that Leo got. More on that later.
So, are all Pink Sheets and OTCBB companies a scam?
Not all, but probably many if not most. How many is impossible to say, but for the average investor, it is worth steering clear all together. Unless you are in the unlikely scenario where a close family member works there and you know it is real. Even then, you still have a risk that the company doesn’t go well, so it is still very risky.
Why don’t the authorities do something?
They won’t help you in Asia usually. The call comes from somewhere else. Another country. What can they do? It probably didn’t actually come from Japan. More likely Thailand, Burma or elsewhere in Asia. Cross border collaboration on big frauds (like SinoForest for example) can happen but are vanishingly rare. On small cases you have a better chance of getting a Peace Prize by solving the Middle East's issues. The authorities have zero interest. What responsibility do Thai authorities feel for expats in other countries?
Can I do anything at all? Yes report it.
In Asia only Singapore’s MAS and Australia’s ASIC make a serious effort at consumer fraud protection. Australia has a decent scam watch list here. If you get scammed, reporting it to Singapore and Australia are your only avenues. Also report it to the bank where you sent your money. Don’t raise your expectations high though. You are just paying it forward.
Is there ANY way to get your money back? I’m willing to try anything!
Sadly, no. Even if you found a hit-man (and I’m NOT suggesting that you do), you would have to track down the right person. The name used is always fake. Only the bank account they gave you is real. At best it is long closed and was likely opened with fraudulent details in the beginning.
Do the shares have any value?
Nope. Normally too rough to even be used as toilet paper.
Conclusion
Only scammers sell shares over the phone by cold calling.
They can manipulate the price to produce any performance they chose, but it has no real value.
We have heard of a pink sheet scammer who bothered to travel to Suzhou, IN PERSON, to sign the client up. That is rare but a good warning. Asking them to visit won’t weed them out.
Avoid pink sheets and OTCBB stocks.
Only set up stock brokering accounts with a big famous broking company like e-Trade, Interactive Brokers, Morgan Stanley, TD Ameritrade etc.
A stock broker must be licensed by a financial authority in its home jurisdiction, so check out their licensing if you haven’t heard of them before.
So what happened to Leo in the end? Retirement delayed for many years.
He did several deals after the first one was successful. His last trade was a $50,000 USD purchase with him sinking in $130,000 USD in total. That was a majority of his liquid retirement savings. Leo is 63 and although he wants to retire, he has to earn that money back now. Even though he has high blood pressure he can’t retire. So much for relaxing in retirement from those share purchases.
He still hasn’t found the courage to tell his wife.
A final point, beware the follow on cons and variations of this scam.
If you still believe
The single share upsell. This company is going to do another deal. You need to buy now!
The next share. I have another share for you!
If you want to sell, I have a buyer but he wants a BIG LOT. I need you to buy another 5,000 shares since I have a buyer for 10,000 shares. Then I can sell your shares.
Unlock your shares. These shares don’t have sale rights, but you can pay $5,000 to “unlock” them. Then finally...
Class Action Lawsuit. A few months after they disappear you get a call from a “lawyer” asking if you want to join the class action lawsuit against Mike Glass. All you need to do is send $2,000 USD to join and fill in this form. ALSO a scam.
The story is all too true. Be careful and tell your friends.
*All names have been made up.
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