What is the doctor advisory scam?

By Katie Adams AAA
A:

U.S. securities law provides certain exemptions that allow privately owned companies to issue shares of unregistered stock to select, qualified investors. In the "doctor advisory scam", an unregistered security scam, exemptions were used to make unregistered securities appear legitimate.

In the August 6, 2006 edition of Medical Economics, author Berkely Rice describes how it typically works: "…thousands of doctors receive faxed letters from a CEO inviting them to join the medical advisory board of a small company with a 'breakthrough' medical product. In exchange for serving on the board, the physician will receive a specified number of shares of stock and, sometimes, expense-paid trips to annual meetings in resort locations."

After doctors sign up to join a board, they are contacted by a "company executive" to invest in the company through a private stock offering with promises of astonishing returns once the stock goes public. Unfortunately, the "company executive" is typically a telemarketer earning a steep commission on each "stock" sale. Oftentimes, not only is the stock bogus, but the breakthrough product also does not exist.

(For more on this topic, read Wham Bam Micro-Cap Scam and Stop Scams In Their Tracks.)

This question was answered by Katie Adams.

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