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OVERVIEW
Asked to reflect on his life as a swindler and a mobster, Charles "Lucky" Luciano confessed that, if he could, he would change just one thing: "I'd do it legal," he said.
"I learned too late that you need just as good a brain to make a crooked million as an honest million. These days, you apply for a license to steal from the public," Luciano said. "If I had my time again, I'd make sure I got that license first."(1)
Luciano was not specifically talking about a stock broker's license. However, the three days of public hearings on micro-cap stock fraud by the New York State Attorney General's Office on July 29, August 5 and August 12, 1997 demonstrate that his statement resonates with great truth today.
In 1996, the New York Attorney General's Bureau of Investor Protection and Securities received a record number of complaints and inquiries from the investing public, approximately 3,100 -- up 40% from 1995. The number for 1997, assuming the continuation of the current pace, will be more than 4,300, an increase of almost another 40%.
The most frequent complaints involve incessant high-pressure calls from brokers who just won't take "no" for an answer, unsuitable recommendations, unauthorized trades, and refusals to sell a stock when directed. The long list of complaints also includes stock manipulation and false performance predictions, often based on what the broker intimates is inside, non-public information. And all too frequently, the brokerage firms complained about are located in New York to create the impression that they are part of our healthy, legitimate marketplace.
As a result of the widespread and increasing number of complaints about fraudulent practices in the micro-cap area of the brokerage industry, the New York Attorney General convened a series of public hearings on July 29, August 5 and August 12, 1997 to investigate this apparent trend in micro-cap stocks and the individual brokers and firms that sell them to the public.
Micro-cap stock offerings can serve an important role in the American economy. Without this source of capital for smaller and riskier companies, many might never become viable businesses. And there are, indeed, some success stories where both the company and the investor actually made money. But the very nature of these low-priced, thinly traded, risky stocks provides fertile ground for manipulation and fraud.
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