SEC warns of schemes targeting physicians

The government says thousands of doctors have been fleeced by "affinity fraud."

By Katherine Vogt, amednews staff. Dec. 1, 2003.

Federal regulators say there's a trend of would-be scam artists luring physicians into fake investment opportunities by promising them a seat on a medical advisory board or review panel.

The Securities and Exchange Commission has taken action against at least four such scams in the last year and a half, said Susan Wyderko, director of the SEC's Office of Investor Education. Thousands of physicians collectively lost millions of dollars, she said. She declined to say whether the agency was investigating additional, similar cases.

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Wyderko said the SEC prosecutes a lot of "affinity fraud" cases in which the victims share some link. Typically, the common thread is religious or ethnic background. So when SEC staff noticed that physicians had been targeted in two similar fraud cases this year, the agency began to investigate.

"We saw a troubling trend," Wyderko said. "What we saw is that fraudsters are targeting physicians and asking them to serve on a medical review board, a medical advisory board or some such concept, for a fraudulent enterprise. The physicians, who are busy, believe they have been sought out for their particular area of expertise, and they respond."

Under a typical scenario, the promoters of the scam claim to have advanced medical technology that they want the physician to review. They'll telephone or send the physician a fax that looks like an invitation to sit on a prestigious board. Once the physician accepts that role, the pitchmen tout their product.

"They are very good," Wyderko said. "Their livelihood depends on their ability to fool very intelligent people into thinking they have a very legitimate investment opportunity."

Once the physician hands over the money, Wyderko said, the promoter of the scheme often disappears.

Jack McCreery, an SEC staff attorney, outlined four cases pursued by the SEC:

In September, the SEC sued Vector Medical Technologies of Boca Raton, Fla., for securities fraud. The company claimed to have user-friendly transdermal delivery systems for high-density medications. The company allegedly sought out physician investors to join a medical advisory board as a ruse to get them to buy stock in Vector. In all, the scheme raised roughly $16 million from about 450 people, primarily physicians. The lawsuit is pending.
In January, the SEC sued GetAnswers Inc., an Aventura, Fla.-based Internet company, for the unregistered offering of securities. McCreery said physicians were contacted and told they could make as much as $2,000 a month working a few hours a week answering medical questions that were posed through the Web site. Then the physicians were solicited to invest in the company. About 180 physicians were caught in the scheme, which took in $6.3 million. The case was settled. McCreery did not disclose the terms.
A case was brought against Nutrition Superstores.com Inc in December 2002. The North Palm Beach, Fla., company allegedly invited physicians to serve on a medical advisory board to evaluate products that were touted with grandiose claims. But according to the complaint, the invitation was a ruse to get a list of physicians who could later be targeted by unlicensed agents selling company stock. The scheme allegedly took in about $10 million from nearly 770 investors. The case was settled. An injunction was issued, and the company and an executive agreed to give up their profits without admitting wrongdoing.
In a complaint filed in June 2001, the SEC alleged that Medical Research Industries of Ft. Lauderdale, Fla., ran a telemarketing operation and engaged in fraudulent stock offerings. The company purportedly manufactured and marketed homeopathic products. MRI allegedly raised nearly $52 million through fraudulent sales of securities to more than 2,500 investors nationwide, primarily physicians. The case was settled last year. At least two executives agreed to pay fines without admitting any guilt.

Efforts to locate telephone numbers for these companies and their representatives were unsuccessful.

Wyderko said physicians can protect themselves against scams by investigating investment opportunities. She said most larger companies are registered with the SEC, which can provide regulatory filings so an investor can evaluate the company. Also, she said state securities regulators can tell potential investors if there is a disciplinary record for a company or its promoters.