Yes people bought. I hate to admit this, but I was a broker from 1986 to 1991. Quite honestly I had no business being a broker, but I was hired and I was fairly successful. I was 19 at the time and I September of 1987i took home $23,000 for that month. The money was incredible and in my defense, I was young, stupid and relief on the older brokers as mentors.
During a typical day I would make around one hundred cold calls. The average was 1 prospect for every ten casks. As mentioned above, the sales pitch was a three step process.
1: The first call was an introductory call. Basically you introduced yourself, the firm and asked them I’d they were interested in hearing about up coming situations.
2: You would mail them your business cards and dime literature about the firm. Call back in a week to confirm they got the mail. Tell them at that time that it looks like your research department possibly had a situation, you had a meeting scheduled in a day or two. Would you like me to call you? This was building up the interest.
3: The sales call.
It is important to remember that each of these calls were scripted. We read scripts given to us by the more experienced brokers. The movie Wolf of Wall Street was really quite accurate. And the money was unbelievable. I know of several brokers who cleared over $100k the ninth I made the $20.
I’m not very proud of the fact that I was involved in all of this. I was young, motivated and wanted to make a ton of money. I really didn’t understand what was happening at the time. Looking back on our now the one thing that amazes me the most is that there was almost zero oversight by the government. How this was allowed to continue is mind boggling.
Cold calling and mentioning a penny stock is against SEC regulations. Penny stocks have a series of extra rules that apply to them, since they are dodgy and more easily manipulated. And the first rule is that you can’t suggest a penny stock to an investor until they have a history of trading penny stocks.* Obviously, if you’re cold calling, you don’t know their history. This is a good way to lose your license.
*If the investor approaches you, you can make the trade, but only after reading them the riot act that penny stocks are not a good investment at all.
Now that the question has mostly been answered, I suggest you watch Glengarry Glen Ross. It’s about real estate, but the concept is similar. The salesmen are something to watch in that movie. They use a combination of truths, lies, half-lies, deceptions, misleading, and anything they can to convince their marks. The ones that like each other lie each other up without hesitation.
I should clarify what I said about being called by people pushing penny stocks. It’s possible that I just assumed the stocks were penny stocks. I don’t recall if they specifically called them that and I never let them get far enough to start talking price. I did have the impression that they were putting lipstick on pigs when they described the companies, but a stock can be crap without literally costing pennies.
When I was young I bought a small amount of stock in the late sixties. Every couple of months I’d receive a call from a legitimate brokerage trying to convince me to invest my money with them. Even after telling them my age ( 11 and up), some of them persisted (most chuckled and said they’ll call back in a few years). Plus the letters I’d receive.
So cold calling was an accepted form of doing business for legitimate brokerages back then. It wasn’t til the eighties that the scammers really took off.
70s-80s? Hell, it still happens. From time to time, a boiler room will be busted in Bangkok – I’ve even heard of one busted across the border in Vientiane – that was cold calling suckers in Australia.
And also of the character Gil Gunderson on The Simpsons ([shaky voice] “C’mon, help ol’ Gil out here!”[sv]). Specifically the Jack Lemmon character Shelley Lavene. Great movie (and play first, it should be noted)!
I know a senior who has lengthy conversations with telemarketers. She’ll question them, scold them, about anything but cuss at them or hang up on them. Sometimes they’ll wind up with a sale.
To use The Wolf of Wall Street** as an analogy, a firm such as the one Jordan Belfort (Leonardo DiCaprio’s character) began selling penny stocks at (if you haven’t seen it, it was a small operation operating out of a storefront in a Long Island strip mall) probably would not be able to sell you IBM stock, as they would not want to subject themselves to the scrutiny that would be necessary for them to be allowed to do so. However, the firm Belfort eventually founded, Stratton Oakmont, actually employed a strategy of appearing very professional and white collarish to gain the trust of potential victims. Part of this strategy was to initially get their marks to open accounts to invest in blue chips such as IBM, and then take advantage of this trust by fraudulently enticing them to buy penny stocks and the like at inflated prices.
Keep in mind that cold calling is not always fraudulent or associated with “boiler room” type outfits. For example L.F. Rothschild, the firm Belfort briefly worked at before the 1987 market crash as a trainee and connector (dialing the phone and setting up cold calls for a senior broker) was, at the time, a white shoe firm that would have been the equivalent of Merrill Lynch or Morgan Stanley.
I was told that not so long ago “white shoe” law firm was slang/known code for “no-Jews.” Of course, the old established firms–finance here, but perhaps the same derivation–may be referred to by that, as you do, that because they’re old and established, as you say, and it works just as well, even if (or because) you’re a Rothschild.
The first index fund was offered by Vanguard in 1976 and took a while to catch on. Discount brokerages were a new thing. During the 1970s and earlier, getting rich in the stock market was conceived by many to involve getting hot tips.
Pump and dump occurs via email today: check your spam filter or these threads:
The fact that people respond to unsolicited emails is even more mind-boggling.
Also, the cold calls of the 1970s often involved investments allegedly related to what was in the news. Coffee futures. Florida real estate. Diamonds. The mark would think he had some familiarity with the topic when of course he really didn’t.
As a one time victim of this approach, can I ask if any of it was real? was it a real company? Was there really an IPO? Did any of them ever make any money? Or was it 100% total b.s.?
As I recall, the company I bought actually existed. I checked into it a little bit and found out it did whatever the sales guy said, and as far as I could tell, did have some chance for taking off. Did my money actually buy me some shares of that company’s stock?
Yes, there really were ipos, but the older wiser me knows that the trading was artificial and prices were based on the whims of the ones controlling the game. Most socks didn’t make money, either staying flat or slowly losing value. However, I did have one that took off like a rocket. I sold my first shares of it at 12.5 cents a share. One year layer shares were selling at $2.125 without a split. Over the years I have thought about that one a lot and what I have realized is that the reason that stock went up like a meteor was that the principals in the firm were heavily invested in the stock. They manipulated the price to enrich themselves.
When I finally realized things weren’t right was one day I was reading prospectus information on several of our ipo offerings. I started noticing that the same people were the executive officers of all of the companies. They were raising money and no matter the stock, the initial funding was all going to the same group of people.
The other warning sign for me was concerning the above mentioned stock. I had a client that purchased at 12.5 cents and we sold it at $2. The client took half the proceeds back and we reinvested the other half in other offerings. I was chewed out by my manager for not only allowing the customer to receive half his funds back, but for not getting more money from him. Right then I knew something was wrong and left the business a few months later.
I spent years with guilt over my participation in this circus. As I said before, I went into the business with the best of intentions. I followed the lead of the managers and the people that trained me. I was 19 years old and these guys were Gods to me. They wore $2,000 suits and drove exotic cars. I thought we were a legitimate firm and looking back it amazes me how little I knew, how little everyone knew about investing. What we knew was how to sell.
The other thing that amazes me now is the size of the commissions. When I sold a stock the commission was anywhere between 20 to 35%. At the time I thought that was normal, but no investor could ever make money with spreads like that.
I’m very sorry you lost money to this. The 80’s were a hell of a time and I think we were all caught up in it, the brokers, the clients, everyone. In part I blame the government. They issued the broker licenses and to sell stock the only thing you had to do was pass the series 7 test. I was straight out of high school and didn’t know a damn thing about stocks, but I was able to sell them. And there was no one overseeing the industry. How could the SEC not have known what was going on?
As a sad follow up, I did a Google search on my firm and found out one of the brokers I worked with was convicted a few years ago of a investment firm scam similar to the Bernnie Madoc fiasco. He style BILLIONS from people. I was shocked to read this. His name was Bruce Prevost if your interested in looking the case up. What made it more shocking is he and his brother were the Christian type, always trying to save everyone. What a mess.
Hey I just wanted to say thank you for sharing your story, it is very interesting. For what it is worth(since I never lost money this way) I don’t blame you for being dazzled as a 19 year old by the whole thing, I don’t think you should feel embarrassed.