Boiler Room Telephone Scripts Leave Investors Crying Investigators Find Classic Yarns That Can Only Lead To Unhappy Ending
Sat., June 21, 1997
This is a column about a company that has everything it takes to be the next Microsoft. It’s one of those once-in-a-lifetime opportunities, and a successful businessperson like you would not want to miss out on the inside information we’re about to tell you.
You won’t learn this inside poop from our media competition, by the way, because they weren’t invited to an exclusive lunch that ended just minutes ago with the company’s CEO. But you’d better act fast, because this little idea will draw a stampede before you know it.
If you’re still reading, we’d urge that you make it your business to get through the rest of these thousand or so words. Because if you’d fall for a financial column that promised inside dope and can’t-lose investments, you’re the perfect target for the scripts being used at the nation’s most infamous boiler rooms.
Securities regulators for years have been confiscating copies of sales scripts when they raid the places where penny stocks are hawked, and a recent roundup included true classics of the scripted-pitch genre.
In a series of exhibits to complaints filed by state regulators in late May, regulators laid out the ploys used to persuade investors to buy stock in frequently worthless companies.
Among other things, the scripts take great care to assure the pigeon on the other end that they’re dealing with a high-class professional.
“Our top analysts, investment bankers, economists, technical and portfolio strategists have put together a collaborative treatment of —-,” reads one script seized by the regulators.
“I understand you haven’t heard of Lew Lieberbaum,” reads another. “The reason is very simple. We choose not to advertise. We’re not a Merryl (sic) Lynch or Shearson Lehman house that has to advertise because they don’t make their clients money.”
Regulators from the New York State Attorney General’s office picked up the Lieberbaum script not at the brokerage firm Lew Lieberbaum & Co., but at First United Equities, a New York firm accused of deceptive and fraudulent sales practices in a May 27 preliminary injunction.
“These young brokers with a few years experience have already bounced through many firms,” explains Andrew Kandel, bureau chief for investor protection at the attorney general’s office. “They acquire the firms’ scripts and take their favorites with them when they leave.”
Thus, at First United, regulators tripped across what could best be described as a “Greatest Hits” of scripts that included the names of Duke & Co., Gaines Berland, Lehman Brothers and D.H. Blair: a looseleaf binder “filled with more than one hundred scripts,” the memo from the Attorney General said.
Marvin Gersten, a lawyer for First United, said the firm did not allow brokers to use scripts, and that the broker who owned the book of scripts had been fired before New York took action against the firm.
Whoever may have used them, the scripts cover every possible turn in the prospecting conversation.
To the investor who wants a research report: “When Columbus discovered America he didn’t send a report until he actually saw the land. At that point it was history,” one script says.
And, to the prospect who says it is not the right time, or he is not in the right mood, for buying stocks: “If I had a six-foot blond today, would you be in the right mood?”
Some scripts direct brokers to compliment their prospects, building them up as savvy businessmen (they target men, avoid women) who can make big-bucks decisions. “I have a lot of important people like yourself to contact,” one script says.
Others, though, direct brokers to be outraged with the client who may be resisting. “I can’t believe what’s going on here!!,” reads one script. “Morgan Bank treats me nicer than you. Do you realize who consults with us? Ted Turner talks to me nicer than you do.”
It never hurts to let the prospect think they’re in on a big secret, cold callers have learned:
“(whisper) Mario Gabelli has just taken a 4.9% stake,” reads one script, where the name “Duke and Co.” was replaced with “FUE,” which are initials for First United Equities.
Throughout the package of scripts, examples abound of promises of future stock prices that wind up unmet, and claims of past price performance that are whimsical at best.
One script has the broker boast that the initial public offering of Sonic Environmental Systems made winners of investors when the stock soared to $22.75, a price enjoyed for only 10 trading days before it plunged to less than $3. (It last traded at 75 cents). The company was delisted from the NASDAQ SmallCap market in April 1996.
Investors give all sorts of excuses for not wanting to buy, and scripts give eager brokers a way to be ready. The investor who says he isn’t ready for a second stock is asked “Mr. —-, a question, did you marry the first girl you ever kissed?”
You can’t expect the compliance department “to be sitting on top of the broker” watching to see if they use scripts, says Tom Rensvold, who works in the compliance department of Duke & Co., one of the firms whose name appeared in the scripts seized at First United.
And you apparently can’t account for all manner of mysterious use of a brokerage firm’s name on other people’s scripts. “We don’t have any idea what those scripts are,” says Steve Anreder, spokesman for D.H. Blair. “We won’t even speculate how someone developed a script using the firm’s name.”
And neither will we.
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