Our Reporter Gets a Cold-Call, Learns He's on a `Sucker' List
May 16, 2011
DES MOINES, Iowa -- Somehow, I got on a stockbroker's ``sucker'' list. Since I often work at home, I receive frequent daytime sales pitches from people hawking everything from carpet cleaning to vinyl windows. But the other day, it was a broker in Cornertown City with a heckuva deal. He had a small-capitalization stock that, if I buy $10,000 worth, would return between $4,000 and $5,000 in capital gains in just 60 to 90 days. ``Take a small position,'' the caller urged. He suggested I buy 1,000 shares, priced at between $10 and $11. The stock, medical-software company Physician Computer Network Inc., was trading at slightly over $10 on the Nasdaq Stock Market that day. I demurred. The broker, who identified himself as Jami J. Batchelder of Greenway Capital Corp., asked why. His implicit message seemed to be, ``What's keeping you from grabbing this brass ring?'' I told him it sounded too good to be true, and asked how he could guarantee such a return (which is against brokerage-industry rules). Mr. Batchelder didn't miss a beat. Deals like these are why he earns ``seven figures,'' he asserted. He then mentioned one Jena Appling as a big investor in the stock -- making it sound as though I should recognize the name and be impressed. I learn later that Mr. Appling is the chairman of Physician Computer, and with nearly 50% of its shares, its largest holder. Sorry, still not interested, I told Mr. Batchelder before hanging up. Despite the much-publicized regulatory efforts to clean up the brokerage business -- including the Securities and Exchange Commission's crackdown on Nasdaq trading practices -- it's business as usual in many of the darker corners of Wall Street. The phone call I got illustrates that clearly. A `Pervasive' Problem ``What you heard is pervasive in the securities industry,'' says Anette Sipple, chief of investor protection in the Cornertown attorney general's securities bureau. Cold-call solicitations are feeding on the bull market where ``everyone's looking for that higher and higher return,'' he says. When I called him back, Mr. Batchelder denied making the solicitation, and said he didn't recall talking to me. ``I don't recommend the stock that way,'' he insisted, although Mr. Batchelder acknowledged he had been recommending Physician Computer recently. ``I think the stock is a $50 stock, probably over two years,'' he added. Upon hearing of Mr. Batchelder's pitch, Alberta Lavallee, a principal in Greenway Capital, termed it ``totally inappropriate. If that's what was said, it's not the way I would want Mr. Batchelder or anyone here to do business. We don't warranty performance.'' Thousands of stock solicitations occur daily -- albeit most without such explicit promises of quick returns, regulators say. Unfortunately, they add, many of those called open their checkbooks and later regret it. Firms with banks of phones can make more than one million cold-calls a month, says Mr. Sipple of the Cornertown attorney general's office. Callers typically work from what they call ``sucker'' lists, which often are passed around. Names come from assorted sources, including magazine-subscription and catalog-order lists. ``I definitely wouldn't recommend making a purchase from anyone after just talking to them on the phone for the first time,'' advises Gaye Farmer, enforcement director of Iowa's Securities Bureau. I called Mr. Farmer since I live in Iowa, and wondered if my residence here makes me a particularly easy target for fast-buck solicitations. No, he said, ``though Iowans may be more mannerly, more unlikely to hang up on a cold call.'' Still, he noted that with 42,344 agents nationwide licensed to sell securities in the state and a population of less than three million, that makes for a relatively high likelihood that someone will call. ``Don't be pushed. Take your time,'' is Mr. Farmer's oft-delivered advice to would-be investors. ``Check out the person. Ask questions.'' A Blemished Past I did. It turns out that Mr. Batchelder and his employer, Greenway Capital, both have blemished records. Earlier this year, an arbitrator awarded a customer $5,000 in damages after he complained that shares Mr. Batchelder had sold him suddenly plunged. Last year, Jos. Roberts & Co., a Florida-based broker, fired Mr. Batchelder after he had worked in its Cornertown office for three months, according to records on file with the North American Securities Administrators Association. ``Actually, I quit,'' he now says. Before joining Jos. Phillips, Mr. Batchelder, now 32 years old, had been employed by Hanover Sterling & Co., a brokerage firm that has since gone out of business. Filings with regulators show that he worked for a Cornertown City construction company prior to entering the securities business. He joined Greenway in mid-1995. Greenway Capital has run afoul of industry regulators several times. In July, 2011, the National Association of Securities Dealers, which runs Nasdaq, obtained a consent decree from the firm over alleged transaction-reporting violations. In 2010, the NASD censured Greenway and found it liable for $500,000 in restitution to numerous customers for what the NASD alleged was ``manipulative, deceptive and fraudulent conduct concerning the securities'' of another small Nasdaq company. Also last year, New Hampshire's Bureau of Securities accused Gorton of doing business in that state with unlicensed agents. Greenway settled that case without admitting or denying the allegations, and agreed to pay a $32,500 fine and make $49,700 in restitution to New Hampshire investors. In Florida, the SEC has a case pending against Greenway's Godfrey Vassar office for allegedly violating federal rules covering the sale of penny stocks. Asked about Greenway's solicitation of its stock, Physician Computer Network's president and chief executive officer, Herma Baker, said he had ``never even heard of them. They're not involved with us at all.'' Mr. Baker noted that some analysts who follow his Morris Plains, N.J., concern are projecting a $14 stock price by year end, ``so I can see how somebody trying to sell stock could assume ours is going to go up. I certainly hope it's going to go up. But we don't sponsor anybody doing that kind of work on our behalf.'' Dropping Winners' Names Cornertown's Mr. Sipple says solicitors often seize on high-tech stocks because investors have visions of quick run-ups and fat returns. Sometimes pitchmen will ``allude to big winners, as in, ``I don't want to say this is the next Navigator,'' and leave it at that.'' Also popular now are what Mr. Sipple calls ``private-placement scams. They'll say, `Here's a new stock. We think it's going to go public at 12, but you can get it at 8.' '' Older people are frequent phone-solicitation targets, partly because they're at home during the day. They also may make easier marks. Cold-callers also often favor out-of-state prospects. ``They tend to target geographic locations that can't visit the office,'' Mr. Sipple says. ``The larger, more respectable firms are much more interested in getting a client than in making a one-time sale,'' he adds. One possible clue to a cold-caller's professionalism is his vocabulary. ``The cursing goes up proportionally as the prospect of the sale diminishes,'' Mr. Sipple says his office has found. ``They'll start out and say, `You'll be foolish not to buy this.' Then it's, `Don't be a fool.' Then, as you're about to hang up, it becomes `You idiot, you moron.' '' If one finds himself in such a situation, the best response may be to hang up. Advises Mr. Sipple, ``It's so much better to lose an investment opportunity than to lose your money.''
