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Some stockbroker firms have "house stocks" that they are contracted to sell or that they use their stockbrokers to sell to artificially boost the price of the stock. These "house stocks" are often penny stocks (between $1 and $20 per share) with low revenues and negative or low earnings. They are typically not carried on any exchange except the NASDAQ over-the-counter market. The house stocks are sold through high pressure "boiler room" sales tactics with exaggerated claims of future potential stock price increases. A stockbroker may be liable to a customer if that broker misrepresents material facts or fails to disclose material facts to the investor in the sale or recommendation of an investment. How stockbroker sales schemes work (Illegal "Touting") These organizations and their stockbrokers generally establish credibility through misrepresentations about themselves and their organizations. In the initial series of calls, these brokers will make a relatively small investment recommendation in a well-known reputable company with a steady and rising stock price. Shortly after this account-opening initial transaction, it is not uncommon for the account-opening broker to refer the client to a "senior account executive" that has the "experience and expertise" to handle the client's accounts. In reality, the second broker is generally a seasoned, skilled, high-pressure salesman. After the initial transaction, the stockbrokers in these organizations only recommend house stocks. Hot Tips Recommendations to customers must have a reasonable basis in fact and withholding critical material from a customer could be considered fraud. If a stockbroker tells a client to buy or sell a security based on a insider information, the broker may have committed securities fraud. If the "hot tip" is not fictitious and used to artificially promote the stock or if the "hot tip" is real, either way the broker has violated insider trading rules and may be subject to criminal damages. Even if you may have been a party to such a transaction, you should contact a securities attorney to find out your legal rights. The stockbrokers are either getting paid higher commissions to sell those stocks or are hoping to artificially drive up the price of the stock. If you are dealing with a broker who is using high-pressure sales tactics; and/or making exorbitant predictions regarding the investments they are promoting; and/or refusing to allow you to sell your investments, you may be dealing with a stockbroker and/or organization that is attempting to perpetrate a fraud upon you. The best rule of thumb if you find yourself in this situation is to immediately get your money away from this organization and consult an attorney. The attorney will help you to get your money back and compensate you for any losses. Fraudulent Internet Promotion (Pump and Dump) Another technique is using email spam to promote stocks. Fraudulent companies will send thousands of emails and make false comments on message boards through the market and through the opening of the market the following trading day. These messages will falsely promote the tiny company and drive up the price. If the fraud goes as planned, this will cause a surge in the price and volume of the microcap company's stock. When the price has skyrocketed, the defrauder sells his shares in the market he has created, realizing substantial profits per share. This practice of driving up a price and then dumping it is called "pump and dump." If you believe you have been victimized, contact us. |
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All Contents Copyright, Stock Broker Fraud Lawyers Online, 2003
We are a network of attorneys who handle Stock Broker Fraud in the United States
Submit your case for confidential discussion with an attorney.