(MONEY Magazine) – Thinking about investing directly in munis? Be on guard for less-than-truthful sales spiels from unscrupulous brokers. For examples of their claims, MONEY studied transcripts and testimony given to Arizona securities regulators about Buchanan & Co., a Jackson, Miss. bond dealer. Buchanan reeled in almost $500 million from 20,000 investors who bought more than 120 muni issues underwritten by the firm between 1982 and 1985. Among the munis they purchased: 63 issues, primarily for nursing and retirement homes in the South, that are now in default. In April 1989, Buchanan filed for bankruptcy; two months later the firm lost its license after consenting to findings that it had engaged in deceptive sales practices. What follows are three pitches used by Buchanan brokers to unload issues such as the $15.5 million offering to finance construction of the 180-unit Sun-Mesa Health Center in Mesa, Ariz. Each statement is followed by what the brokers didn't say. If you get a call from a broker making similar claims, slam down the phone. -- ''Municipals are 99.9% safe.'' That may be true for general-obligation bonds, which are backed by the issuer's full taxing power. The Sun-Mesa issue, however, was of far riskier industrial revenue bonds. Their interest was to be paid from future rental income, which never materialized. The center lacked the capitalization to get a state operating license and never opened. As Robert Davis, a bond broker in Austin, Texas, warned at Buchanan's Arizona hearing: ''Just because a bond is tax-free and a city's name is on the prospectus, that doesn't mean the government stands behind it.'' The town of Mesa didn't, and the bonds, which sold originally for $1,000 each, now trade at 16 cents on the dollar.

-- ''These bonds are guaranteed.'' Sun-Mesa bonds were guaranteed, but not by a major muni insurer like AMBAC, FGIC or MBIA. Instead, the five-year surety was provided by one of Sun-Mesa's developers, Otto Mark Tarvainen of Westerville, Ohio. At the time, he had already guaranteed at least $44 million of bonds for other projects. A year after this issue defaulted, Tarvainen filed for bankruptcy. -- ''This issue is too small to pay for a bond rating.'' Some Buchanan salesmen went on to say that a municipal bond does not have to be rated at all to be a good, secure investment. In fact, Davis testified that Buchanan would not get a top grade from Standard & Poor's or Moody's for the Sun-Mesa issue because the project was so badly underfinanced. -- J.W.