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There is an ancient belief that the gods love the obscure and hate the obvious. Without benefit of divinity, modern men of similar persuasion draft provisions of the Internal Revenue Code. Section 341 is their triumph. ~Martin D. Ginsburg

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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 frauds.

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 promotions.

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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