[Congressional Record Volume 143, Number 70 (Friday, May 23, 1997)]
[Senate]
[Pages S5086-S5087]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




        TRUSTING AMERICANS SUBJECT TO EMERGING SECURITIES FRAUD

  Ms. COLLINS. Mr. President, as the chairman of the Permanent 
Subcommittee on Investigations, I want to take this opportunity to 
highlight a growing problem with securities fraud in this country--a 
problem which affects thousands of American families who are now 
investing their hard earned savings in a booming stock market. The 
problem involves the fraudulent manipulation of the stocks of small 
companies in scams which can literally wipe out investors who place 
their trust in unscrupulous brokers and stock promoters.
  Fraud in the sale of small company stocks has been increasing at an 
alarming rate. In the typical case, unscrupulous brokerage firms, often 
operating through intermediaries, purchase large positions in a company 
which is worthless or of very limited value and then drive its price 
higher through manipulation. They do this by aggressively cold calling 
thousands of unsuspecting individuals, often inexperienced in 
investing, and persuading them to purchase the company's stock by 
greatly exaggerating its financial prospects. The inevitable effect of 
this massive sales campaign is to push the price higher, at which point 
the brokerage firm dumps its shares, leaving the public holding 
investments which rapidly become worthless.
  According to published reports and court proceedings, these schemes 
often utilize other illegal or unethical practices, including: The 
dissemination of false information on which investors rely, the 
employment by brokerage firms of persons with criminal records, as well 
as the use of unlicensed individuals whose only activity is ostensibly 
to prospect for customers but who often participate in making sales for 
which they are paid under the table; and the bribing of brokers to 
assist in the manipulation by recommending the stock to their trusting 
customers.
  These securities fraud schemes have been uncovered in recent 
prosecutions and criminal investigations. At least four grand juries 
around the country are investigating small-stock manipulation--what may 
be the financial crime of the 1990's, just as insider trading was the 
financial crime of the 1980's. Indeed, according to published articles, 
a Federal grand jury in Los Angeles has even investigated a Federal 
prosecutor suspected of engaging in securities fraud. And last year, an 
FBI sting operation in New York City resulted in the arrest of 46 
individuals for this type of activity.
  In recent years, the soaring stock market has attracted millions of 
new investors, many of them hard working families trying to save for 
the future or elderly Americans trying to expand their retirement 
savings. it is understandable that these individuals, confronted with 
the prospect of astronomical tuition bills for their children or 
escalating medical costs for themselves, fall prey to sales pitches 
promising high returns in what are supposed to be the glamour companies 
of the future.
  Overall, it is estimated that one in three American households have 
some of their assets invested in the stock market. Most do not have the 
time or the resources to carefully scrutinize stock offerings to 
determine which ones are fraudulent, instead putting their faith in 
brokers, who, because they are licensed by the Government, the public 
believes it has reason to trust.
  Mr. President, some years ago I served as the State of Maine's 
Commissioner of the Department of Professional and Financial 
Regulation, and one of the responsibilities of my department was the 
protection of investors in my State. While that experience taught me 
that America has the most dynamic and healthiest capital markets in the 
world, it also taught me that there is no shortage of con artists and 
fraudulent schemes. What was true then unfortunately appears to be true 
today, and regrettably, there is evidence that the problem may be more 
widespread.
  While the vast majority of those who work in our securities industry 
are honest, we must be continually vigilant in safeguarding the 
integrity of our markets. We must remain committed to combating what 
appears to be a new wave of securities fraud, involving the intense 
marketing and subsequent manipulation of the stock offerings of small 
companies, many with high-tech sounding names. These offerings--when 
pushed by overly aggressive and fraudulent marketing pitches to average 
American families and the elderly--present a ripe opportunity to lull 
the investing public into believing the stock is about to take off. Too 
often, these stocks do not soar to the heavens but rather fail to the 
ground.
  This fraud must be fought on a variety of fronts. The regulators must 
continue to enforce existing regulations and to watch for illegal 
activity. The public must be more careful in investing in the stock 
market. And the Congress must--and will--closely investigate this 
growing problem of securities fraud.
  As chairman of the Senate Permanent Subcommittee on Investigations. 
Mr. President. I am concerned about this fraud in the micro-capital 
markets--about this manipulation of small company stocks by Wall Street 
bandits. The subcommittee has a long and proud tradition of 
investigating schemes which rip off innocent consumers and taint the 
reputations of those who play by the rules. This investigative 
tradition will continue under my leadership. With more and more 
Americans entering the stock market each year, the Permanent 
Subcommittee on Investigations will be looking closely at these 
matters, investigating how these stock manipulation schemes victimize 
American investors and how we can arrest this emerging securities 
fraud.
  I look forward to working with my colleagues on the Governmental 
Affairs Committee and in the Senate to protect the public from 
unscrupulous operators who would prey on hard working Americans seeking 
to participate in the American Dream through investment in the stock 
market. The expanding economic opportunities presented by a booming 
stock market should not benefit just the most wealthy Americans, but 
should benefit average American families as well.
  As the chairman of the Permanent Subcommittee on Investigations, I 
promise you that we will vigorously investigate those who abuse the 
trust of their fellow citizens seeking to invest their hard earned 
savings. I further pledge that we will be especially relentless in our 
efforts to expose schemes which exploit the elderly. During my tenure, 
the subcommittee will use its investigative authority to shine the 
light of truth on those who operate in the shadowy fringes of America's 
capital markets.
  I thank the Senate for its attention.
  I yield the floor.
  Mr. ENZI addressed the Chair.
  The PRESIDING OFFICER. The Senator from Wyoming is recognized.
  Mr. ENZI. I thank the Chair.
  (The remarks of Mr. Enzi pertaining to the introduction of S. 802 are 
located in today's Record under ``Statements on Introduced Bills and 
Joint Resolutions.'')
  Mr. ROBB addressed the Chair.
  The PRESIDING OFFICER. The Senator from Virginia.
  Mr. ROBB. Thank you, Mr. President.

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