Regulators Warn of Surge in Latest Generation of High-Tech Schemes; 20 States, FTC Move Against Paging License, "900" Number, Other Scams
WASHINGTON, D.C. In response to the latest wave in high-tech "information superhighway" investment scams that are fleecing unwary U.S. consumers, the Federal Trade Commission (FTC) and 20 state securities agencies today announced the results of "Project Roadblock." The coordinated state-federal campaign involved 85 actions targeting high-pressure telemarketing operations peddling over a quarter of a billion dollars of the new generation of investment swindles, including Federal Communication Commission (FCC)-awarded paging licenses and pay-per-call "900" number partnerships.
Jodie Bernstein, director of the FTC's Bureau of Consumer Protection, said: ""Project Roadblock" is a massive effort focusing on the newest genre of schemes pitching investments in emerging telecommunications systems. The technology is so captivating and the scams so enticing that the only roadblock that can really make a difference is one put together by this kind of broad-scale coordinated federal-state effort."
"Paging licensing and "900" number scams are the latest in a long line of swindles to be pawned off on an American public that seems to be blindly in love with anything and everything that is labeled "high tech,"" said North American Securities Administrators Association (NASAA) President Dee R. Harris, who also serves as director of securities for the Arizona Corporation Commission. "What we are saying today is very simple: don't be exploited by con artists promising low risks and fat returns on technology that, in fact, is extremely speculative and likely to pay off in only a small percentage of cases."
SCOPE OF THE PROBLEM
Though the entire array of telecommunications-related frauds continued to be a problem, the high-pressure telemarketing promotion of paging licenses and "900" number investment schemes surged during 1995. Over a quarter of the investment dollar losses of all types reported to a federal-state database between March- October 1995 involved high-tech "information superhighway" scams, with paging licenses and "900" numbers being among the most common. Individual investment losses reported by the FTC in paging license scams ranged from $2,900 to as much as $400,000.
The following cases turned up by the 20 state securities agencies and the FTC in "Project Roadblock" illustrate the nature and extent of the pager and "900" number schemes that are sweeping the nation:
- The Arizona Securities Division reports that a California company selling limited partnership interests for $5,000 in a "900" number scheme told investors that their investments were "backed by a US Treasury bond that secures their principal 100 percent." According to the FTC, the president of the company threatened to sue a 78-year-old woman when she refused to increase her investment in a "900" number partnership. The company falsely told investors that it had already set up "300 lines covering . . . you name it. They've all been set up throughout the U.S." In fact, they had no such lines. Investigators found that received funds were siphoned off to pay for sales commissions and expenses. One chart mailed to prospective investors suggested that if the partnership had 300 popular lines, somebody who invested $10,000 would get an annual return of $23,530.
- According to the FTC, a Florida telemarketing outfit pushing paging licenses not only falsely claimed to be a member of two trade associations, but also misled customers about the location of its offices. Telemarketers were instructed to say that they were calling from the company's headquarters in the World Trade Center, when in fact, they were making calls from a boiler room in Broward County, Florida. Hapless investors in this scheme were told they would receive a "$1,000 a month" return on their investment.
- The California Department of Corporations reported that a retired couple and a welder were among the victims of four related California firms peddling high-tech partnerships in "900" numbers and other schemes. The state investigation found that the partnership promotions took in $19.5 million between August 1994 and the end of 1995. The state estimates that 85 percent of the proceeds were diverted to the promoters, either directly or for expenses. Though they were promised their money back within 16 months and long-term profits of $70,000 or more, the investors have not received a penny to date.
Among the victims: a house-bound, elderly Alexandria, VA. woman, who was fleeced in four high-tech schemes, eventually losing her entire life savings of nearly $100,000 raised over four decades as a babysitter.
HOW THE SCHEMES WORK
Paging licensing scams begin when a promoter offers to secure a license for an investor that covers a paging frequency in a portion of the U.S. The con artist would have you believe that the license will be worth a fortune to major paging operators because the FCC only allows each person or company to obtain one license in any market. The idea that an enormous profit can be made on the resale or lease of the license is without foundation. In fact, there is no limit on the number of licenses a company may acquire in a market. While a fast-buck telemarketer may say otherwise, market experts will tell you that a paging company won't lease a paging license owned by someone else in order to build its customer base.
In pay-per-call "900" number investment scams, high-pressure telemarketers encourage you to purchase an interest in an "information provider" partnership. Instead of owning a "900" service outright, investors are pooled in partnerships, much like the investment arrangements made regarding oil & gas wells, equipment leases, and real estate. Typically, investors are not told the real costs for which information providers are responsible, including paying for national promotion, and forking over fees to any endorsers used in "infomercials" or other advertisements.
NASAA's Harris added: "The reason that we have investment regulation in the United States is to protect consumers against unscrupulous promoters who try to hide risks and exaggerate the potential for profit. In reality, if these promoters complied with state and federal requirements on disclosing risks and profits, very few investors would go within a mile of these investments. The truth is that these investments, if properly presented, are suitable only for sophisticated high-rollers who can afford to lose every penny that they put into them."
"If a company calls you touting the profits and minimizing the risks of investing in communications systems and licenses, hang up the phone," said the FTC's Bernstein. "Investors need to realize there are no easy profits in telecommunications investments. They require lots of capital and business savvy to have a chance of making any profit at all."
HELP FOR CONSUMERS
Both state securities regulators and the FTC are releasing information detailing ways in which investors can protect themselves from the new generation of "information superhighway" scams. Through NASAA, the states are releasing a free, five-page "Investor Bulletin" that explains the new "information superhighway" scams and how they can be avoided. The FTC is releasing its consumer alert brochure entitled "Telecommunications Scams Using FCC Licenses."
Consumers who want to check out a potential high-tech information superhighway scam should contact their state's securities division. The name of the agency and its phone number are available by calling the North American Securities Administrators Association at 202/737-0900. In the U.S., NASAA is the national voice of the 50 state securities agencies responsible for investor protection and efficient capital formation.
Consumers may also want to file a complaint by calling the National Fraud Information Center toll-free at 1-800/876-7060. Or write to: the Federal Trade Commission, Division of Service Industry Practices, Washington, D.C. 20580. Call: 202/326-2222.