There are many legitimate telecommunications technology companies
that have raised capital through lawful and honest means, often
through public offerings of securities registered with the SEC. In
the last year, however, the SEC has instituted ten injunctions and is
investigating other cases regarding fraudulent, unregistered sales of
securities in ventures involved in wireless cable, specialized mobile
radio, interactive video and data services, and similar
telecommunication technologies. State securities administrators and
the Federal Trade Commission have also brought numerous other
enforcement actions in this area. Investors should be aware of these
The SEC is particularly concerned about promoters of fraudulent
telecommunications technology ventures targeting retirement funds.
For example, promotional materials typically include all
documentation needed to transfer IRA funds to make the investment.
The SEC has discovered instances in which promoters falsely represent
that the Internal Revenue Service had approved the investment for IRA
funds, and misstate that they had been encouraged by the IRS to
contact the investor. The IRS does not approve particular
investments for IRA funds; nor does it provide the names of IRA
investors to promoters.
These schemes have other common features. Fraudulent
telecommunications technology ventures frequently take the form of
limited liability companies and partnerships. Promoters often
falsely state that investments in the ventures are not subject to the
securities registration requirements of the federal securities laws.
The ventures are often promoted through radio and television,
frequently through so-called "infomercials," that solicit investors
to show their interest by calling toll-free telephone numbers. After
doing so, potential investors routinely are subjected to high-
pressure telephone sales pitches. These sales pitches are often
repeated in glossy brochures that lend an air of legitimacy to the
Among the more glaring fraudulent inducements made in these sales
pitches are convincing (but baseless or unreasonable) predictions of
enormous profits to be made in a short period of time, accompanied by
forced urgency to invest. At the same time, promoters fail to
disclose accurately and adequately the highly speculative nature of
the investment and how the offering proceeds will be used. The SEC
has encountered particularly inadequate disclosure regarding sales
costs, which may range as high as 60 percent of gross proceeds, and
"consulting" and other fees paid to promoters and their affiliates.
After these offerings are concluded and the sales commission and
insider payments are made, investors are often left with an interest
in an entity that has little or no funds to do business; in other
words, a security worth little or nothing.
Other common fraudulent inducements to buy unregistered securities in
telecommunications technology ventures include false statements that
licenses are owned or are under control of the venture, and that the
enterprise is operationally ready or is farther along toward
operational readiness than is the case. Additionally, promoters
commonly fail to disclose past criminal and civil law enforcement
histories and material contingencies (such as required regulatory
approvals and the acquisition of adequate additional capital) that
must be met before full operations may begin.
The SEC is cooperating with other concerned federal agencies, state
securities administrators, and the North American Securities
Administrators Association, Inc. (NASAA) to combat telecommunications
technology securities fraud. But, investors must be aware that their
first line of defense against securities frauds is their own
diligence and skepticism in evaluating a proposed investment --
especially one not registered with the SEC. For example, investors
should consider contacting legitimate industry trade groups BEFORE
making a proposed investment. These groups may often offer
information useful to potential investors, such as checklists that
enable knowledgeable evaluation of a proposed investment. Other
steps that may enable investors to protect themselves include:
discussing promoters' claims with registered securities professionals
and other advisers you know and trust; exercising extreme caution
when you are solicited, particularly over the telephone, to buy
securities that are not registered with the SEC; and checking the
broker-dealer registration and disciplinary histories of promoters.
Remember that "if it looks too good to be true," it probably is.
The phone number of your state securities administrator may be
obtained from NASAA by calling (202) 737-0900.
The disciplinary history of registered broker-dealers may be obtained
by calling the hotline maintained by the National Association of
Securities Dealers, Inc., 1 800 289-9999.
The SEC's offices and consumer affairs telephone numbers are:
Boston, MA, (617) 424-5900, extension 604;
New York, NY, (212) 748-8085;
Philadelphia, PA, (215) 597-2278;
Washington, DC, (202) 942-7040;
Atlanta, GA, (404) 842-7658;
Miami, FL, (305) 536-5765, extension 7459;
Chicago, IL, (312) 353-1686;
Fort Worth, TX, (817) 885-6465;
Denver, CO, (303) 391-6810;
Salt Lake City, UT, (801) 524-3135;
San Francisco, CA, (415) 705-2500;
Los Angeles, CA, (213) 965-3952
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