Wrong Numbers Chill Cold Callers
The practice of smiling and dialing used to be the most widely-used means of reaching out to potential clients, but do-not-call lists and phone screening have turned cold calling into a regulatory minefield for stockbrokers.
Two recent victims on the battle field got blown up when they unwittingly made very questionable phone pitches to none other than securities regulators. Nice — sort of like trying to sell crack to an FBI agent.
New York brokers may have been seeking naïve victims in Missouri when they made calls to that state, but they got more than they bargained for when they dialed up the securities enforcement division of Missouri’s Secretary of State:
Missouri Secretary of State Robin Carnahan today announced that a New York stock broker could face thousands of dollars in fines after cold-calling a Missourian to solicit investments. Unfortunately for the broker, the Missourian he allegedly called happened to be an employee of Carnahan’s Securities Division. The broker, Sukhwan Michael Yun, is not registered to offer securities in Missouri as required by law. This action comes just three weeks after two New York stock brokers with a separate firm repeatedly called the same staff member in Carnahan’s office with similar investment offers.
In the earlier instance, regulators issued a cease and desist order involving Financial Network Investment Corporation brokers:
In November 2010, FNIC agent Derek Robertson allegedly cold-called the same staff member at the Secretary of State’s Office. During that call, Robertson allegedly offered securities, attempted to transact a purchase over the phone, and offered to be the staff member’s personal broker.
And apparently the problem was not simply that the brokers had failed to pass the Series 65 exam—the pitch was pretty bad too. The brokers allegedly talked up huge returns for Nuveen Multi-Strategy Income & Growth Fund (JQC), a closed-end fund which Nuveen describes as having a primary goal of providing income. But regulators were told they could expect spectacular returns:
[Investors] could expect a twenty to twenty-five percent (20-25%) return during that six to eight (6-8) month period. Robertson characterized this as a “realistic” and “very conservative” estimate . . . .
The pair also claimed that investors would profit when the fund “caught up” with its discount to net asset value. In reality, closed end funds often trade at a discount for long periods of time, often coming under fire from investor activists.
In December, the regulators say, a Meyers Associates broker called the same regulator. The broker’s registration in Missouri had lapsed, but that wasn’t the only problem.
The broker repeatedly pressured the regulator to purchase shares of Nuance Communications, a company the broker said has a billion dollars in earnings. (It had over a billion dollars in net revenues for the year ending in September, but the company recorded a net loss.)
The broker allegedly pitched the sale of this risky tech stock without making any attempt to ascertain the investment’s suitability for the potential client. He also claimed the stock would jump from its early December $18 level to $30, because the company would likely be acquired by Apple. (Nuance has created communication interfaces for Apple but has not been acquired. Nuance stock continues to trade around $18.50 as year-end approaches.)
The brokers at both firms await hearings where they can contest the regulators’ suggestions that fines are in order.
If the Missouri regulator’s allegations prove true, both investment pitches at issue involved outrageous claims – making it quite hilarious that they were neutralized by enforcement officials.
However, it remains unknown how many other Missouri residents acted on the outlandish pitches. And that’s not amusing at all. Either way, the business of cold-calling potential clients seems to have taken another well-deserved step towards the financial history books.
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