The following "cold call" between a broker-dealer agent and a sales prospect was recorded by the agent's firm and later obtained by the Securities Division during an inspection. The conversation is reproduced without change, except for the deletion of certain names. Editorial deletions and annotations made by the Securities Division for educational purposes are shown within brackets.

Please note: "cold calls" or attempts by strangers to sell you something are a legitimate means for businesses to reach potential customers. Honest brokers use cold calling to find new clients. They try to understand your financial situation and goals before recommending that you buy anything. Dishonest brokers use cold calls to find "quick hits." They may falsify information, try to pressure you into a bad investment, or otherwise attempt to defraud you.

Start of audio-tape:

Broker-dealer Agent: ("Mark")
$17 per share, Brian we're expecting an announcement at 40 looks to happen any single day. Now the reason I'm convinced, it looks like a few months ago I stepped out of a mirror image situation when El Niño hit the West Coast. You do remember that happening?

Person Contacted: ("Brian")
Oh yeah.

Mark:
Of course, Brian the damages were devastating. Billions of dollars worth. Well, we saw FEMA [Federal Emergency Management Agency], they stepped in to assess damages on the West Coast. Immediately [company name], California's largest homebuilder, they received the re-building contracts. Brian, the announcement hit, the stock at 17 reacted perfectly. It stopped trading - minutes later it reopened at 25, ran as high as 38 - it was another huge, huge winner for my clients [Mark never had any clients in this company's stock, so it was not a "winner" for them]. Brian, my point to you is this, as you can tell by my track record, clients at [his firm], they're making a fortune following a very simple strategy in fact. We take positions in fundamentally sound companies like [company name] just before a catalyst moves the stock price higher. Let's face it, you pick up the local [city] paper and read about it, typically it's a little bit too late for you to get involved. I mean you're with me there, correct?

Brian:
Oh yeah.

Mark:
No question. My strategy with [company name] is specific Brian. It starts with the fundamentals which are rock solid. This company is doing $2 billion in annual revenue. They're A+ rated for safety by Standard and Poors and a dividend of $.56. These are great reasons to get involved here at 17. I promise you one thing. It's not why I have you on the line. Listen very closely to this. [Mark's voice at this point lowers to a quiet whisper, as if he's sharing a secret with Brian that he doesn't want anyone else to hear.]

Brian:
Yeah.

Mark:
You're aware a few weeks ago, you've obviously seen it first hand, the devastation in the southeast region, the gulf states due to hurricanes, tropical storms. You've seen it, correct?

Brian:
Oh yeah.

Mark:
Of course you have, homes, docks, piers. What it boils down to very simply is lumber that was destroyed by all of the massive flooding. Well, the beauty part in this situation is this - [company name], Brian they happen to be the number one supplier of lumber and building materials to the southeast region. They have an 83% strangle hold on the market. However, the reason I've called you this morning is this - Brian, it's my information [company name] and FEMA, they've been negotiating the first of a series of rebuilding contracts that my sources have revealed to be, could be awarded in a matter of days. Now when this announcement hits, like we saw with [company name] mirror image to [company name] a few months ago [the companies Mark cites as "mirror" images were in very different types of businesses and had different financial situations]. Here we have [company name] at 17, poised and ready to run. What I have been doing is this. As of 16 and ¾, I've been buying large equity blocks in the stock for all of my clients [at the time Mark had not purchased any shares of this stock]. Brian, what I suggest we do is this. My clients are now a quarter of a point in profits [since Mark had not purchased any stock for his clients, there were no "profits"]. I would suggest we position a block of 2,000 shares. It's $34,000 into the idea. Before you do anything, you'll obviously receive standard confirmations from the NYSE [stock exchanges do not provide trade confirmations to customers]. Your funds, of course, will settle regular way. However, we build a position at these levels before any announcements hit the security, I'm thinking over the next 30 days our percentage gain is staggering. But more importantly, I think the announcement hits, we have profits at a minimum of $40,000. What do you say?

Brian:
It's very interesting. I need to check it out though.

Mark:
OK. No, I would actually recommend you do so. Can I ask you this? Obviously, I know one thing Brian. You weren't waiting for my call with the checkbook open prepared to buy the security.

Brian:
Right.

Mark:
Of course. Let me ask you this. Putting the dollars and cents completely aside. From what I have revealed to you, does the idea make sense? Do you like the idea?

Brian:
Makes sense. Sure.

Mark:
Of course. I don't know what your market experience is but the last time we spoke regarding [company name] you told me you were well diversified. You obviously did due diligence before you ever invested in the market in terms of any security. But I know one thing for sure, if I wanted to know something about your company, and obviously what you do day to day, it's a pretty safe bet I've got the right guy on the phone. Correct?

Brian:
Oh yeah.

Mark:
No question. You know your company better than anyone, Brian. The same thing holds true for any company. Whether it's public, whether its private, the insiders know it best. Well, how's this? Just like I track the insiders at [company name] just a few months ago, I've done the same thing with [company name]. Brian, the insiders of this company, they have not purchased one share of their companies' common stock over the last year and a half. However, the beginning of hurricane season rolled around just a few months ago. Since then Brian, the insiders of this company, they've repurchased 20 million shares [there was no evidence of insiders buying shares anywhere near that level].

Brian:
Good God.

Mark:
18%, sir, of the outstanding float. Well now, the question is this? With the insiders of [company name]. They know their company like you know yours. Huh? They're putting $400 million dollars into the stock days before they receive multi-billion dollars contract. Brian, when this announcement hits, where's the stock price gonna go?

Brian:
Uh, mmm ...

Mark:
Exactly. I mean, then correct me if I'm wrong. Let's say you knew who Mark [surname] was. I made you money in the market over the last five years. Like I implored you to get involved with [company name]. Is it fair to say that if you knew me today Brian, you would be much less hesitant to get involved?

Brian:
No.

Mark:
No? You mean to tell me if we had a position in [company name] at 30 a few months ago, we sold out at 53, then I showed you [company name] at the beginning of the year at 17, we sold out of the situation in the mid 30's and today, Brian, I hit you a third time with a mirror image situation [the companies cited were in different businesses with different financial situations]. Maybe you're not buying 2,000 shares, but I think you'd be buying something. Even if it was a small block. Does that make sense?

Brian:
Right.

Mark:
The fact, very simply, is this. You don't know me. You don't know my company and I've never made you a dime. You haven't allowed me yet. All you know about me is one thing. My name is Mark [surname] and I was right about [company name]. [Even if Mark was "right" about the company, at the time he did not have any customers in the stock.] But you know what, maybe he was lucky? What you don't know is this. I am one of the largest money managers at [his firm] nationwide. [In fact, Mark was a new agent and was one of the least productive agents at the firm.] I manage a substantial amount of equity for the top 3% wealth in this country [all of Mark's clients were of average income]. Men like yourself who take making money in the market very very seriously and I will tell you this, I did not achieve this position by being wrong often, by losing my guys' money, and definitely not by working on small trades [all of Mark's trades were relatively small in size]. But I will tell you one thing, today's conversation is strictly about establishing a track record between you and I for the next 5 to 10 years and Brian, the size of this trade does not matter to me. Now, in an effort to make you feel comfortable, since I know you like the idea and I'm convinced we're reading about this situation by this weekend. What I would suggest is this - we split the block in half and position a 1,000 shares, it's $17,000 into the idea. It's less, we'll make less as the stock continues to trade higher, but our percentage gains will remain identical, and if you judge me on that and not the $20,000 I think we book in profits when the announcement hits, I think the only remorse you and I have is that we didn't know each other well enough to position a block of 20,000 shares. Because Brian, the idea is that good.

Brian:
Mmm ... Well, let me look into it. I'm not going to make a rash decision on the phone in an instant moment here.

Mark:
OK.  Well, obviously a $17,000 investment is something that you want to look into ahead of time.

Brian:
Oh yes.

Mark:
Of course. And I will tell you this right now. If I could call you Brian at the most convenient time, meaning when obviously we know each other and you were sitting there flushed with cash prepared to invest in the market. I really wouldn't be the type of guy you want to deal with. And the reason for that is very simple. I'd be calling you at the most convenient time for you as opposed to necessity to the market [a typical high-pressure sales tactic is to convince customers to buy now, rather than after investigating an opportunity].

Brian:
Right.

Mark:
I'll never call you and tell you how many shares you have to own. Obviously that's up to you. You know how your pockets are doing right now.

Brian:
Mmm ...

Mark:
I'll make suggestions, but the final determination is in your hands. But what I demand from my clients, sir, is one thing. They allow me to pick when we buy and when we sell because pricing and timing, whether its one share or 50,000 shares, are the two two tools that I have to show you the percentage gains you deserve. Brian, you have to understand there's one very specific reason why I'm so excited about [company name] and it's because I made money with this stock before. Do you remember in '93 when the Mississippi River flooded?

Brian:
Oh yeah.

Mark:
Oh my god. I mean the damages were devastating. Billions of dollars worth again. Similar situation. We saw FEMA step in the midwest states to assess damages. Immediately [company name] got the contacts to rebuild, but the key back then, Brian, is this. Do you know who the [large, well-known mutual fund] is?

Brian:
Yes

Mark:
Ok. Three days before [company name] received contracts in '93 to rebuild, Brian, the [mutual fund], they positioned a 5.5 % stake in the company. Three days later, as I said, contracts hit the desk of [company name] executives. They signed on the dotted lines. Boom, 80% in a matter of three days. It was a major winner for the [mutual fund] and for my clients [Mark was in high school in 1993]. Well, the bottom line is this, history is repeating itself. We have FEMA assessing the damages in the Gulf States and the [mutual fund], they have moved on the stock again. Brian, over the last few weeks they have positioned 7 million shares of this company's stock. I don't care what anyone says. Mutual funds, they're no smarter than me, they're no smarter than you. They just get their information first.

Brian:
Mmm ...

Mark:
And I get the same exact information. Brian, I'm saying this to you right now. You position a 1,000 shares, you work with me very small on a $17,000 investment and in 30 days we see this announcement hit, you have $17,000 now worth $40,000. I think that's when you begin to realize the type of asset that Mark [surname] can be to you and your company for the next 5 to 10 years.

Brian:
Ok. Let me do some research. Call me back.

Mark:
I have no problem with that whatsoever. The easiest thing in the world that I can do, Brian, we'll let you go ahead and do the research you have to do.

Brian:
Yup.

Mark:
I can call you back in maybe, you know, tomorrow or whatever the case maybe.

Brian:
Yup.

Mark:
The stock will be up. I'll be right and you'll pay a touch higher for the security.

Brian:
Well, I understand that.

Mark:
Of course and it's not really a big deal on a thousand shares. It might be a couple of hundred dollars. Certainly not the end of the world. But, put yourself in my clients' position for just a second. These are individuals of high net worth who own 25 and 50 thousand share blocks of [company name], in that ball park [Mark did not have any clients with share holdings of that size].

Brian:
Uh ha.

Mark:
Which is obviously a sizable investment. We've an eighth and a quarter on 1,000 shares. That's a couple of hundred bucks. An eighth and a quarter on 50,000 shares over the course of the year adds up to college tuition for your children.

Brian:
Right.

Mark:
And the reason that they retain my services, Brian, is for one specific one. I scratch, claw and kill to save my clients every eighth of a fraction of a point that the average money manager on Wall Street will not. And that's exactly why I only deal with the top 3% wealth of this country [as before, all of Mark's clients were of average income]. My clients are not the average schoolteacher making 40 or 50 grand a year [all his clients were actually in this income range]. And if you think I'm making 40 or 50 grand a year like the order takers at Chuck Schwab, do me a favor. Hang up the telephone and go ahead and call one of those guys. [In fact, Mark earned $10,000 the previous year and at the time of the recorded conversation was below that annual income level for the year.]

Brian:
Ha, ha, ha

Mark:
This is not the case.

Brian:
Ha, ha, ha. I hear ya.

Mark:
You're laughing because you know that I'm right.

Brian:
I do and look, I looking at my 10 o'clock appointment right now. So let me look into this and if you want to, call me back, or call me back and we'll go from there.

Mark:
I have no problem with that whatsoever.

Brian:
All right.

Mark:
It was a situation when we spoke about [company name] a few months ago, where Brian, you took my name down, you took my number down and obviously, you misplaced it, since that time frame it's been some time and obviously, as a stock at 30 moved to 35, I never heard from you. As it moved to 45, my telephone never rang.

Brian:
I don't recall that conversation. That's what I want to look into. I keep copious notes on everything. Let me go back and look at that. I get a lot of calls from a lot of you guys and I don't remember that conversation between you and I at all.

Mark:
I don't doubt it for a second. My clients get 10 to 20 investment calls on a day to day basis.

Brian:
You got it.

Mark:
Brian and I'm sure you do as well. And that's exactly why you and I, sir, we're basically cut from the same cloth. But from the sound of your voice and from the information that you're revealing to me right now, it sounds to me that you're an individual whose not necessarily made the type of money in the stock market you anticipated. Now, what I'm saying to you right now is my commission for this trade is a hundred-dollar bill. And what I'm promising you now is this - before you do anything, you'll have information on [company name], myself, my firm [brokerage firm's name] and, of course, [brokerage firm] which is my clearing agent that keeps you reading through the Thanksgiving holiday. What I can tell you is this. If I have the authority to have you do your research and tell the guy at [company name], excuse me, sirs, I have an individual who I want to make a few thousand dollars for, hold off on signing your multi-billion dollar contract so I can show em that I'm the guy that deserves to manage his money.

Brian:
Uh huh

Mark:
I think you know Brian, you and I wouldn't be on the phone right now.

Brian:
That's right.

Mark:
We'd be counting our millions on some white sandy beach. I am telling you this will all due respect, sir, if you hesitate with a situation like this. You will not make a dime. I don't care if it's $17 on one share or if it's $170,000 on 10,000 shares.  [Mark is again using a typical high-pressure sales tactic to urge Brian to immediately trade without doing any investigation or research].

Brian:
I know that.

Mark:
My commission is going to be $100 bucks and I promise you one thing, I don't need it to feed my kids. But I know for sure, if I put you in this stock at 17 and we're selling out at the position at 40, if you own [company name], think about it. We wouldn't even being having this conversation here today. Can I make a suggestion to you? I'm about to step into a traders meeting myself, as you are or as you are about to step into a meeting as well. Typically what I trade on the block minimum is 500 shares.

Brian:
Uh huh.

Mark:
What you would be looking at is less than $9,000 into the idea. It's a ham sandwich for guys like you and I [although a relative newcomer to the business, Mark tries to portray himself as a big player]. But I will tell you one thing, you judge me over the next 30 days, now the $9,000 that turns into $18,000, $20,000, you judge me on the fact that I was right on the dime. And next time out, we'll discuss working bigger and better.

Brian:
Sir, I will look into it. Like I said, I need to look into. I don't want to proceed any further at this point. I do need to walk into this meeting and feel free to call me back.

Mark:
Well, well

Brian:
All right. Well, thanks very much.

Mark:
Let me say one thing before you run. The chances of you and I ever speaking again, not to be curt or cute, are one in a billion. The reason very specifically is this. You have a company. What's the name of your company?

Brian:
"Brian" hangs up the telephone.