Take care if you receive a phone call or an e-mail claiming that an unknown company is about to launch a phenomenal IPO
and that the share price will shoot up. Before buying any shares, make sure you have all the information you need. Do not let anyone put you under pressure. Take your time and consider your decision carefully.
«Good morning, Mr Müller here from Bestfraud GmbH in Rümlang. I have a great tip for you to make a huge profit on the Frankfurt Stock Exchange.» The con sounded friendly enough to start with. The shares were in a high-tech stock company called Cashteque, which was apparently on the verge of a breakthrough with an ingenious new type of renewable energy. By buying into the imminent floatation, investors could take a slice of Cashteque’s success. The current share price was only five francs, and there were at least 10,000 to be had. Analysts were predicting (raved Mr°Müller) that Cashteque shares would at least quadruple in value. But there was not much time left, because the listing was scheduled for next Monday and after that the chance would be lost. Being an ethical investor, Mr Meier seized the opportunity. That very same day he transferred CHF
°50,000 to an account held by Bestfraud for what he believed would be a sustainable green investment.
A few weeks passed after the Cashteque IPO and investors had still not received their share certificates, so a number of them contacted FINMA. Cashteque AG seemed to exist. Its website was convincing and even gave details of the planned floatation. But it was soon clear that Bestfraud had no authorisation to sell Cashteque shares. So FINMA appointed an investigating agent to look into Bestfraud’s affairs. It was soon discovered that the company served only one purpose: hawking overpriced Cashteque shares to Swiss investors. Bestfraud was issuing shares without the required licence. It was liquidated by FINMA.
While investor Meier was waiting in vain for his certificates to arrive, he had done a little research on the Internet and had become profoundly unsettled. The first five search results for the name Cashteque all turned up warnings not to buy the shares under any circumstances because they were worthless penny stocks. The trading volumes for these cheap stocks are so low that they are subject to huge price fluctuations, and that often makes them playthings for speculators. Cashteque’s equity of EUR°100,000 had been broken down into one million shares at one cent each. Mr Meier realised that he had been sold outrageously overpriced junk stocks in a company that never engaged in any real commercial activity.
The consequences for investors
While FINMA was winding up the intermediary Bestfraud, it emerged that all the money received had been sent to Germany to line the pockets of the owners of the phantom Cashteque. As FINMA can take no action against companies registered in Germany, the ethical Mr Meier and his fellow investors had lost their money for good. The unethical owners of Cashteque had exploited national borders to their own ends. Unfortunately, this kind of behaviour is witnessed again and again.