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Maryland Securities Division - Investor Education

Invest With Common Sense

Phony Phone Investments: 1-900-YOU-LOSE

Everybody has one, or wants one. Car phones and cellular phones are everywhere. The popular media and advertisements proclaim their usefulness, while the financial media reports the profit that can be made in the high tech communications business. Unfortunately, too many phony phone-scam operators will try to convince you to get into the commercial side of the business, without telling you that you may end up with a useless license or nothing at all.

The technology is good. Car phones and cellular phones are great additions to business, and a great help in emergencies. And beepers are a boon to those who need to be reached in a hurry, from traveling salesmen to overworked moms to expectant fathers. The Federal Communications Commission (FCC) is issuing new licenses to allow for expansion of the systems to enable all consumers to have access to such technology.

The pitch is simple. It comes in the form of a soft-sell telephone call or a slick brochure. For a fee, a company you never heard of will help you prepare an application to submit to the FCC to get your own license. But, the cost is more than the mere FCC application fee: the cost will include help in filling out the application -- such as engineering studies, legal review, and clerical assistance. This will almost "guarantee" your getting a license; and that will almost "guarantee" your making a fortune!

That license will give you control of a very small localized piece of the airwaves. But, chances are you are not ready to set up and market your own cellular system with just that. So, the pitch goes, for a fee the phony phone-license company will find a large cellular system operator to buy out your license, or a partner for you to merge with, and you'll make your fortune that way. Don't spend it yet! The big telephone systems already have the licenses they need, or they can file with the FCC and get their own without making you rich. You will be stuck with a nothing, or at best a license you can't use.

Unfortunately, now you are in a position to be victimized once again, in what's known as a "recovery room" scam. The same phony phone salesman who called you before may call you again, claiming to have left that other "bunch of crooks" to now work with a "real honest" company. Or, a new salesperson will call, claiming to know of your former loss; she probably bought or traded your name from the first salesman's sucker list. The new pitch is sympathy and optimism. She is very sorry about your prior unhappy investment; she, or her husband/mother/grandmother, etc. lost money too, and she's going to get everybody's money back plus a nice profit! The new pitch will seek more of your money for a modified version of the original investment -- but with no better result!

Maybe you have no interest in cellular phone systems, but investments in the communications business interest you. Another fraudulent solicitation involves a "900" number phone line (a caller to a 900-number is charged a fee for the information received in the phone call).

For a fee, the salesman will set you up with your own 900-number, or put you in a partnership with others. You are told that you can offer advice or prayers, read the weather or horoscopes, give recipes or psychic insight, and you will make a "fortune" as the phone company pays you a percentage of each call into your 900-number.

Unfortunately, often your investment ends up in the salesman's pocket, and no 900- number is ever acquired. Or, the salesmen neglects to inform investors of commissions and start-up costs -- long distance line fees, equipment, production of the message, marketing and promotion. Too often these costs become prohibitive, and the 900-number is unheard, unused, and unprofitable. Sending money to a solicitation to set up a 900-number may be as effective as dialing 1-900-YOU-LOSE!

Avoid learning the hard way... beware of phony phone-system-con artists. If someone solicits your investment for such a purpose, don't commit right away. Take time to think it over -- if it is such a good opportunity, why is a stranger offering it to you? Consult someone whose financial advice you trust. Or, call the Securities Division (410/576-6360) and discuss it with us.

Don't fall for the phony-phone scams. If you really must own a small piece of the growing phone business, consider buying stock in a phone company. But, when the con man calls for your money, just hang up!

Call us, we're here to help!
The Maryland Securities Division
(410) 576-6360


Attorney General of Maryland 1 (888) 743-0023 toll-free / TDD: (410) 576-6372
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