The Federal Communications Commission (FCC) is offering guidelines to help protect potential investors in wireless telecommunications services from being defrauded by unscrupulous promoters. Recently there has been a surge in the number of reported cases of fraud in emerging telecommunications services such as Paging, Specialized Mobile Radio (SMR), Wireless Cable, Interactive Video and Data Services (IVDS), Personal Communications Service (PCS) and Cellular Radio Telephone (underserved areas).
Telecommunications is an undeniably alluring, fast-paced, multi-billion dollar industry. Combine that with brain-numbingly complex technologies and it creates the perfect environment for scam artists. The problem for the potential investor is differentiating opportunity from opportunism.
Separating truth from fiction in these sophisticated scams is not easy. However, the experience gained by the FTC and other agencies prosecuting these types of scams suggests some common warning signs that should alert you that the investment proposal may not be legitimate.
Common Warning Signs:
- COLD CALLS & INFOMERCIALS: If the first contact with the telemarketer is an unsolicited call from a salesperson whom you do not know - be skeptical! Another favorite tactic for luring investors is via television or radio infomercials. Don't trust a stranger!
- HIGH PROFITS-LOW RISK: Scam artists are clever liars. If the sales representative promises high profits with little or no risk, hang up the phone!
- URGENCY: Beware of promoters who say that it is urgent to invest now. Swindlers do not want you to have time to think things over. Some may even pressure you to promptly send your money by courier or wireless transfer. When they say "rush," you say "whoa!"
- IRA FUNDS: Many scam artists claim that their investments have been approved for use in Investment Retirement Accounts. There is no formal, government approval process for certifyingthe appropriateness of funds for IRA status. Don't believe them.
- BE SKEPTICAL: The best protection against being scammed is skepticism. Investigate thoroughly any representations from sales persons BEFORE sending any money because, if duped, you are unlikely to recover any of it . Make sure you fully understand the telemarketers' answers to your questions. Continually ask yourself whether their answers are reasonable. At the end of this pamphlet we have provided a list of contacts to assist you to check the telemarketers' answers independently.
- HIGH RISK: A venture which seeks to obtain immediate, short-term profits from ownership of an FCC licensed or authorized service is a high-risk enterprise. Investors can and do lose money. In evaluating your risk tolerance, you should consider whether you can afford to lose your entire investment. If it sounds too good to be true, it probably is.
- ASK QUESTIONS: Do not rely solely on the representations of the salesperson. Obtain advice from someone you know: friends and family, an attorney, an accountant, an investment advisor, appropriate industry trade groups, the Better Business Bureau, your state commission on corporations, your state attorney general or other business professionals. Be suspicious of representations that the investment is not subject to registration with or regulated by such federal agencies as the SEC or the FTC. If the answers don't check out -- do not invest.
- ADMINISTRATIVE COSTS: Fraudulent telemarketers often take most of the money they solicit from consumers as commissions, promotions, management and other administrative costs. A shockingly small amount of your investment actually goes into your ownership interest.
- AUCTIONS: If the license is subject to an auction, be sure that:
- The auction is scheduled by the FCC;
- The telecommunications service in which you are interested is included in that auction;
- You know how your investment will be maintained pending the auction;
- Your venture is a "Qualified Bidder" in the auction;
- If the venture wins a license, there will be funds and expertise available to the venture to construct and operate the system; If the venture does not win a license, you know how much, if any, of your investment will be returned.
- LICENSE SPECULATION: Be skeptical of any representation that the venture will quickly sell the license or authorization to another company for a huge profit. Sales of systems typically involve a long and complex process. The FCC has regulations that prohibit some services from being sold until the system has been constructed and is operating.
- CONSTRUCTION REQUIREMENTS: Construction of advance telecommunications systems may cost tens of thousands or even millions of dollars beyond your initial investment. Know exactly where that money is coming from. Ultimately, the responsibility to construct and operate the system falls on you the licensee. Some licenses are subject to construction deadlines; the failure to comply with these deadlines may result in the automatic cancellation of your license.
The burden is entirely on the investor to investigate the technology, the potential of these licenses to produce revenues, and the condition of the marketplace. License holders are responsible for being familiar with Federal Communications Commission rules and regulations.
The Commission does not approve any individual investment proposal, nor does it provide a warranty with respect to any authorization. Receiving an authorization for a license from the FCC is not a guarantee of success in the marketplace.
For More Information:
Enforcement and Consumer Informantion Division
Wireless Telecommunications Bureau
Federal Communications Commission
2025 M St. N.W.
Washington, D.C. 20554
Last reviewed/updated: December 1997 Top of Page