On the Phone, Keep Your Options Open
Having options is important to most Californians. Selling options was important to the Beare brothers.
Maybe that’s why they were so successful here. Too bad we can’t say the same for their unfortunate investors, who the government says lost $428 million in 65 months thanks to the Beares’ amazing International Trading Group of San Mateo.
That’s $14 for every man, woman and child in California, where ITG had most of its offices.
“More than 85% of ITG’s customers have lost money,” the U.S. Commodity Futures Trading Commission said in a lawsuit against ITG and brothers David and Bruce.
How many people lost? In a separate class-action suit, notices were mailed to 72,000 former ITG customers who might be covered.
Of course, $283 million of the loss was for ITG commissions, which ran an astonishing 40 cents on the dollar invested. See, not everybody lost.
The Beare brothers are noteworthy because ITG is an example of the kind of telephone sales organization that seems to thrive in California. The Beares haven’t been charged; accused of fraud in a civil suit by the CFTC, they signed a consent agreement promising, without admitting any guilt, not to violate federal commodity law. The CFTC also banned them from the industry.
Attorneys for the Beares say they deny wrongdoing and settled only to avoid further expense and stress. They blame the CFTC for cracking down on practices the agency permitted for years.
ITG is gone now, placed in receivership by a federal judge, but its fascinating legacy, left in 32 volumes of court papers in the CFTC case in federal court in Los Angeles, is a rare inside view of one company’s “misleading” and “deceptive” sales techniques, as the CFTC has called them, contained in chilling transcripts of some tape recordings of ITG sales people. It’s a cautionary tale. David Mamet take note.
For ITG, selling was high art. ITG regional manager Diane Gold seemed to sum up the firm’s philosophy.
“When you start selling them an option, you are on the wrong track,” she said. “What you need to be selling them is their dreams.”
Ken Zolo, apparently one of the firm’s best salesmen, explained that the seller has a natural edge “because there’s two inherent tendencies in every human being, especially in Americans. . . . Everybody wants to buy, and everybody wants to make a lot of money.”
ITG sales people emphasized the firm’s expertise in commodities, but Gold said on tape: “This isn’t any different than vacuum cleaners--OK?--or Mary Kay cosmetics.”
Maybe that’s why sales people were urged to avoid discussing with prospects the intricacies of options trading.
“The most important thing is to give love over the phone,” Zolo said on another training tape.
Besides, getting into real, hard information could necessitate a time-consuming second phone call.
“You’re going to be in a position where you have to get back to them with some new information to make your argument stronger for them to buy,” ITG regional Vice President (and former CFTC attorney) Fred Konigsberg said. “So you want to get back about an interest rate change, about how they just got the banking situation in Ohio settled, the market’s firm or that the dollar’s firm again.”
John Hauswirth, an ITG regional vice president, said: “We actually had a contest where the person with the best 10 responses to ‘I want to wait’ made $100.”
One preferred response: “Let me know how much you made last year using that strategy.”
Under no circumstances was a customer to be given any time for thought. Salesmen were urged to control the conversation with questions, ignore objections and pound away at dilatory prospects with reassuring rhetoric.
“Tell them it’s natural and ‘you’re right for feeling that way,’ ” Zolo said. “Don’t make him wrong . . . he likes me for saying that. He doesn’t see I’m telling him, ‘Hey you dumb idiot, you should be buying.’ ”
But nothing takes the place of appealing to pure greed. Bob Schultz gave this example on another ITG training tape.
“Our customers who are investing with us right now are making 50% to 100% profit on their initial investment,” he said. “Does that sound like something you would be interested in?”
For Zolo, who headed the firm’s Iowa office, selling options seemed to have a metaphysical dimension.
“Selling is a transference of feeling,” he said, adding: “God wants us to prosper, we believe. God wants us to be successful. God wants us to flourish.”
Zolo, who said his hero was the broadcast evangelist Reverend Ike, said closing a sale is a “very sensitive, very delicate” moment during which his brokers were required to stand up: “You can get your energies up, your volume is higher, your power should be flowing more.”
Zolo drew a heart on the blackboard to emphasize his point, which was, “We close with love.”
And he drew a special distinction--one worth noting, considering that the CFTC alleges that 17 of 20 ITG customers lost money. Zolo said a salesman is a professional if he’s selling something that is good for the customer. Said Zolo: “If you sell something to someone that isn’t good for them after they own the product, that’s called the ‘con.’ ”
