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.

RELATED FAQS
  1. What are unregistered securities or stocks?

    Before securities, like stocks, bonds and notes, can be offered for sale to the public, they first must be registered with ... Read Answer >>
  2. What is an unregistered mutual fund?

    An unregistered mutual fund is a general name given to investment companies that are not formally registered with the Securities ... Read Answer >>
  3. How does a pump and dump scam work?

    A pump and dump scam is the illegal act of an investor or group of investors promoting a stock they hold and selling once ... Read Answer >>
  4. What are the top Social Security scams targeted at the elderly?

    Prevent Social Security scams by learning to recognize the most common types of scams that target senior citizens receiving ... Read Answer >>
  5. What are the most common scams regarding Social Security benefits?

    Learn about some of the most common Social Security scams that occur by phone, email and direct mail, and how to recognize ... Read Answer >>
  6. What are the warning signs of online hotel / travel booking scams?

    Learn more about travel booking scams and how to avoid them. Explore warning signs of possible booking scams, and find out ... Read Answer >>
Related Articles
  1. Small Business

    Watch Out For These Top Internet Scams

    The Internet had make it easier than ever for scammers to trick people into giving away their money and personal information. These are the scams to avoid.
  2. Investing

    CEO Email Scams Cost $2 billion

    CEO email scams cost a pretty packet, according to the FBI.
  3. Retirement

    Doctors Helping to Prevent Retirement Scams

    Financial scams perpetrated on seniors are far too common and can be devastating. Increasingly, healthcare providers are playing a role in spotting them.
  4. Financial Advisor

    Avoid These 5 Scams Targeting Senior Citizens

    Unfortunately, many scam artists try to prey on people whom they perceive as particularly vulnerable, especially seniors.
  5. Trading

    Spotting A Forex Scam

    Forex scams are more common than you think. We tell you how to spot them.
  6. Taxes

    Tax Imposter Scams on the Rise This Tax Season

    A growing scam is the tax impostor one, according to the Better Business Bureau.
  7. Managing Wealth

    Work-From-Home Scams: How to Avoid Them

    Learning when a lucrative opportunity is – and isn't – legitimate.
  8. Financial Advisor

    How to Avoid the Top Financial Advisor Scams

    Investors need to be wary of financial advisor scams. Here are the most common and how you can protected yourself.
  9. Investing

    How To Identify A Micro-Cap Scam

    Discover how to distinguish a real investment opportunity from a fraudulent one.
RELATED TERMS
  1. Unregistered Shares

    Investopedia explains: Unregistered shares are securities that ...
  2. Legend

    A statement on a stock certificate noting restrictions on the ...
  3. Rule 144

    A Securities and Exchange Commission rule that sets the conditions ...
  4. Reloaded

    A slang term meaning that a consumer who was previously defrauded ...
  5. Bottom-Dollar Scam

    Fraudulent claims by swindlers or con artists who prey on job ...
  6. Nigerian Scam

    A scam where the sender requests help in facilitating the transfer ...
Hot Definitions
  1. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  2. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  3. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  4. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  5. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  6. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
Trading Center