High Tech Investment Scams on the Rise

Fraudulent investments in high technology and FCC licenses have become one of most devastating get-rich-quick scams of the 1990's. These schemes have cost consumers hundreds of millions of dollars. Scam artists prey on the public's interest in the "information superhighway" by marketing investments in new technologies that often require ownership of Federal Communications Commission (FCC) licenses. Fraudulent telemarketers entice investors with promises of enormous profits just for owning an undeveloped piece of the airwaves or for becoming an investment partner in the building of a system after the license is acquired.

The menu of new technologies shopped by the con artists reads like a science fiction novel, and that is part of the appeal for many unwary investors. Paging systems, specialized mobile radio (SMR), wireless cable, interactive video and data service (IVDS), and personal communication services (PCS) are communications and entertainment services that tap unused parts of the radio spectrum licensed by the FCC.

Virtually anyone can apply for an FCC license through a lottery/auction system and the cost is usually a fraction of what the scam artists charge. Mere ownership of the license, however, is not the golden opportunity or free ride portrayed by the scam artists. A license holder must develop a communications system to make the license valuable and to comply with FCC rules.

Only large, established companies with a long track record in communications services have the expertise and capital to turn a bare FCC license into a fully operating, profitable system. While some telemarketers promote the FCC license as a valuable commodity that can be "resold" or leased to other eager system developers, the FCC actually prohibits applicants from obtaining licenses for speculative purposes such as resales.

Scam artists pool individual investors and form partnerships or limited liability companies, supposedly to raise capital to develop the high-tech communications systems. Most of the dollars you invest actually pay sales and marketing expenses and commissions, leaving little capital for system development.

In 1996, the FTC and 22 state securities agencies, who are members of the North American Securities Administrators Association, announced a national crackdown on fraudulent telemarketers of high-tech investments schemes. "Project Roadblock," as the enforcement action was called, uncovered the following warning signs of high-tech scams:

  1. Unsubstantiated claims of sky-high returns. Scam artists give the impression that investors will receive monthly cash flow from sub-leasing the licenses, much like a utility. Retirees in need of monthly income are especially vulnerable to this claim.
  2. Complicated jargon about new technology designed to impress and confuse you. Scam artists have years of expertise in all areas of fraud and are schooled in overcoming every possible objection. Many have simply dusted off the old sales scripts used to sell oil and gas deals of the '70's and wireless cable deals of the '80s.
  3. Comparing your potential investment to those made by well-known companies. These businesses spent millions of dollars acquiring the license and developing the communications system; they did not give their money to telemarketers.
  4. False claims about quick profits from flipping your license to another eager buyer. This practice is actually prohibited under FCC rules.

How to protect yourself

  • Check for proper registration and prior complaints. To see if a high-tech investment deal and its promoters have been properly registered or licensed by the Iowa Securities Bureau and to check for a record of prior complaints or violations, call or write to:

Iowa Securities Bureau
601 Locust St. - 4th Floor
Des Moines, IA 50309-3738
515-281-5705

You may also contact the North American Securities Administrators Association at 202-737-0900 for the telephone number and address of securities regulators in all states. NASAA is the national voice of the 50 state securities agencies responsible for investor protection and efficient capital formation.

  • Get it in writing. Don't be fooled by slick promotional materials. Anyone can produce brochures at a local copy center, buy a toll-free number, and rent a mailbox at a prestigious address. Insist on receiving a prospectus that provides complete disclosure of risk factors and a breakdown of how much of the investment is going to commissions, brokers fees, or marketing costs, versus the amount invested in acquiring and developing the system.
  • Hang up! Consider this scenario: a stranger, working from a list of hundreds of telephone numbers, calls you at home and asks you to send money to a strange business address for a product or service about which you are unfamiliar. You are told that the profit potential is enormous, it's a safe bet, but you have to get in now or miss the opportunity forever. Hang up and hang onto your money.

To file a complaint

Even sophisticated investors get scammed. If it happens to you, contact the Iowa Securities Bureau by telephone or in writing at the address given above. Be sure to send copies of all correspondence and any promotional literature along with your written complaint.

You may also file complaints with the

Federal Trade Commission
Room 200
Washington D.C., 20580

Securities and Exchange Commission
Division of Enforcement
Washington D.C., 20549

and the National Fraud Information Center at 1-800-876-7060.

Additional investor education information is available through the Iowa Securities Bureau or at North American Securities Administrators Association (NASAA) or 202-737-0900.

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