Money: When a stranger calls

What do you say to an overseas caller offering a once-in-a-lifetime investment deal? MARK FRYER suggests "go away" might be a good start.

When a phone call out of the blue offers an investment with a guaranteed high return, do you hear: (a)opportunity knocking, or (b) danger calling? If you are even tempted to answer (a), an Auckland couple's experience may change your point of view.

For Bob and Carol (not their real names) it began about 18 months ago, with a call from a Philippines-based investment advisory firm with what sounded like an attractive offer. Shares in a United States company, TelNet World Communications, could be purchased at $US4.50, said the caller, but he had inside information which meant the price would so on rise and the shares could be sold at a profit.

Later there was a letter introducing the caller's company, Pryce Weston, "the investment adviser that helps you chart your road to financial success", with addresses in the British Virgin Islands and the Philippines.

In March last year, the couple took up the offer and bought 1000 shares in TelNet for $US4545, brokerage included, or about $8080.

By May, Pryce Weston was able to sell the TelNet shares at $US7 apiece, a $US2500 gain. That profit helped buy shares in another company, Advanced Technologies, at $US6 a share.

That investment also performed well, and by August, some of the Advanced Technologies shares were sold at $US8. At that stage, Bob and Carol bought 50,000 shares in a company called Genesis Capital Corp at 75USc apiece. But then things began to go sour.

While there was some good news - Pryce Weston sent them $US7281 from one sale - Bob and Carol became increasingly nervous about their 50,000 Genesis shares.

In a succession of 15 faxes over eight months they asked that the shares be sold, repeated those instructions, said they needed the money urgently to pay a tax bill and that they were worried about the falling share price.

During that time they were told Pryce Weston had been taken over by another company. Bob and Carol kept sending faxes to that firm, also based in the Philippines, but their shares remained unsold.

Their broker told them Genesis would soon be the subject of news which would push up the share price.

But by April this year the shares still had not been sold.

When they called, says Bob, their broker was always unavailable or on the phone, so they would send faxes and he would call back.

In a fax in April, Bob and Carol said the failure to sell the shares, despite their repeated requests, "does not reflect the actions of a reasonable broker".

Eventually, after their local broker told them they had probably been the victims of a rip-off, they demanded their money back, again with no result.

Then came another call out of the blue, this time from a New York-based company describing itself as a "securities clearing firm", offering help in selling the Genesis shares. The company said it could guarantee to get what Bob and Carol paid for the shares, 75USc each. However, in order to do so, they would have to send more money to buy other shares, and give the firm a power of attorney over the Genesis shares, a request which Bob and Carol have so far resisted.

Bob says the original investment was a "toe in the water", and Pryce Weston passed the first test by sending them some of their profits.

Since the whole saga began about 18 months ago, he estimates they have made $US7000 or $US8000 in profits but at the same time they spent $US37,500 on the Genesis shares, which they seem unable to sell. As far as that money is concerned, says Bob: "I think we can kiss it goodbye."

The exact status of that investment is unclear. There is a company called Genesis Capital International, based in Nevada, with interests in dirt-track raceways, the country music business and property.

It and another share Bob and Carol invested in, TelNet, trade on the US "over the counter" market, a system for buying and selling shares which are not listed on any exchange, usually because they cannot meet the listing rules, but are traded directly among brokers and others.

However, the history of Genesis' share price bears no relation to what Bob and Carol paid.

Some of the other information they were given does not match up either. When they bought shares in Advanced Technologies, for example, a note from Pryce Weston said the code for the share was "ATI". Such codes are used by financial information providers and others to distinguish one share from another, but ATI belongs to an different company altogether, cellular phone operator Air Touch Communications.

Bob and Carol were the victims of a classic "cold call" scam, in which potential investors are called by high-pressure salesmen and offered deals which sound too good to be true - and usually are.

The Australian Securities and Investment Commission (ASIC) says Pryce Weston is one of the most prolific cold callers targeting Australian investors, often pushing shares which have names remarkably similar to long-established firms, and claiming to have inside information.

An ASIC spokeswoman said she did not know of any cases where investors had lost money, but there had been complaints from a number of people who received calls from Pryce Weston, and from another firm which used the same Philippines phone number, Knowle Sachs.

The Pryce Weston name is also familiar to regulators on this side of the Tasman.

If you invest in such schemes, the ASIC warns bluntly, "you will probably lose all your money." Sometimes the companies they claim to invest in don't even exist, it says.

John Farrell, the chief executive of the Securities Commission, which polices the offering of investments in this country, says that while people are free to do what they want with their money, "I think it's madness to invest on this basis". The commission has issued warnings about the cold callers' activities, but Mr Farrell acknowledges that there is not a lot it can do to combat them directly.

He has had a few calls himself from people offering too-good-to-true deals, most recently one from a plausible-sounding young man from Thailand.

If you get such a call, says Mr Farrell, stop for a moment and think about what you are being offered.

"People don't ring all the way round the world to say they've got inside information," he says.

On some occasions, says Mr Farrell, overseas regulators have been able to help investors recover money lost in such schemes, but it's a long shot.

There is a lot to be said for investing through a local firm, which is subject to New Zealand laws. Or, if you want to invest through an overseas broker, make sure you dealing with someone reliable..

The US Securities and Exchange Commission (SEC), which polices investment markets, says you should be especially wary of anyone offering "once in a lifetime" deals, inside information, or guaranteed returns.

Another warning sign, it says, is if the caller won't send you written information on the investment.

In many cases, says the SEC, the callers are working for brokers who already own the stock they are trying to sell you. They will artificially push up the price of that stock until they have sold their own holdings, then let it collapse.

The SEC says the smooth-talking salespeople who make the calls often work in "boiler room" operations, crammed with callers working from prepared sales scripts that include answers to all your possible objections. In some cases, it says, the brokers simply will not sell a stock, no matter what the investor wants.

The SEC's advice if you get such a call? "Don't feel compelled to be polite or stay on the line. Tell the caller you're not interested and hang up."

When the Business Herald called Pryce Weston in the Philippines and asked for three of the people who dealt with Bob and Carol, we were told they were out of the country or on the phone. Anyone who could talk about the company was in a meeting, said the woman who answered the phone, but someone would return the call.

At the time of going to press the calls had not been returned.

* Proving that human ingenuity - and greed - have no limits, some US fraudsters have come up with yet another way of parting investors and their money. Once the cold-calling scam has been carried through to its end, they follow up with another call, this time claiming to be from a Government agency, offering sympathy and saying they can try to recover the money.

The catch is that the out-of-pocket investors first have to send even more money, supposedly to finance the recovery.

Inevitably, neither the "recovery fee" or the original investment are ever seen again.