'Cold-Call' Rules Designed to Stop Penny-Stock Scam

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The Securities and Exchange Commission and several states have moved against penny-stock ripoff artists who are estimated to be defrauding Americans out of several hundred million dollars each year.

New ``cold-call'' rules are designed to make it easier to prosecute high-pressure sellers of penny stocks, and to make investors know how serious the risks are in such stock ventures.

Typical of the way these scams work: An acquaintance of mine one night received a telephone call from a man claiming to represent a brokerage. ``Could you invest $2,000 to $5,000 if you were certain of quickly making many times that amount?'' asked the salesman.

My friend said he never made investment decisions over the phone with unknown brokers, especially during the dinner hour. If the broker would like to send some information, he said, that would be fine.

A few days later, a slick sales pamphlet arrived. Its flowery language attempted to disguise the fact that it provided almost no solid information about the brokerage.

A day or two after that, the salesman phoned again. ``I have an exciting opportunity for you,'' he said. He began to describe a ``sure winner.''

``I think we should buy 10,000 shares at 7 cents per share,'' the salesman concluded. My acquaintance politely declined. The salesman grew abusive and accused him of wasting the salesman's time. My friend finally hung up.

But countless thousands of others don't slam down the phone. They succumb to the company's slick descriptions, the use of the word ``we'' in connection with buying the stock -- to play on the customer's desire to go along with the group -- or the guilt they are made to feel for ``wasting the salesman's time.''

The Securities and Exchange Commission (SEC) is adopting new rules to protect you from this kind of treatment.

The ``cold-call'' rules apply to unsolicited sales pitches made by brokerages involving unlisted ``pink sheet'' stocks. The rules are aimed at stocks selling for $5 a share or less, offered by companies with $2 million or less in tangible assets.

``About 70 percent of these stocks are `blind pool' offerings,'' explains Scott Stapf of the North American Securities Administrators Association. ``That means a company organized solely to raise money. They don't tell you what they're going to do with it. …