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From: www.crimes-of-persuasion.com
Avoiding Boiler Rooms in Stock Fraud Swindles
and BoilerRoom Investment Schemes
The heart of a fraudulent telemarketing operation
is usually a "boiler room," a rented space with desks,
telephones, and experienced salespeople who talk to hundreds of
people from across the country every day.
In a typical investment-related boiler room the "brokers"
( registered reps ) may sit crowded together in a room with long
tables with up to seven phone stations per table. The firm likely
holds mandatory sales meetings every morning at which time sales
techniques are demonstrated and "scripts" for the firm's
"house stock" are distributed. Brokers are expected
to follow the script and only give customers the information it
contains. They are discouraged from doing any outside research,
and are told to rely on the firm's research and representations.
After the morning sales meeting, the reps are expected to spend
the entire day on the phone. The firm expects a high volume of
sales, and if brokers do not stay on the phone, they are fired.
One registered rep told an examiner that he made 250 calls on
a good day; 70 on a bad day. All of his calls had been previously
"qualified" by an unregistered cold caller.
Many telemarketing firms utilize a monitoring process which randomly
tape-records the sales conversations of its telemarketers and
they are made aware of it. This acts as internal policing for
the company to ensure that no incoming cheques are misdirected
from the main operation.
False
Profits Penny Stocks
Overseas Boilerroom Investments
Today, con artists see that investors are paying increasing attention
to overseas investment opportunities so a new generation of scams
has also gone international. Most troubling is a growing pattern
of former U.S. boiler room operators who have moved their telephone
sales operations outside the U.S. and Canada to Hong Kong, the
Bahamas, Thailand, Panama, Costa Rica, Europe, Liberia, and even
South Africa.
The locations of the boiler rooms are carefully chosen, with
con artists dialing out of countries that may have no extradition
arrangements with our domestic law enforcement agencies.
There are also differing views among nations about what are acceptable
market activities. For example, the London Stock Exchange does
not ban "bear raids" in which speculators try to drive
down the price of a stock through short selling, a practice which
is sharply limited under New York Stock Exchange Rules.
In some countries, including Italy, Sweden, Belgium and Taiwan,
there exist few prohibitions against insider trading. Greece and
Kenya are among the nations with no government agency to safeguard
the interests of investors by guarding against marketplace misconduct.
- special series by Christopher Carey
Belgians Battle Boiler Business
A Belgian judge sentenced long-time boiler room fraudster Canadian
Jack Kronis (aka Jack Lewis) to seven years in prison for his
role in running a fraudulent securities ring out of Holland where
Dutch securities laws are considered lax. He and thirteen
other scammers, who got sentences which ranged up to ten years
( but may be eligible for release in three ) were also ordered
to repay the $33 million defrauded from 280 investors of Grimaldi
Hofmann and Co.
Kronis, 41, previously had a role in other such stock scams while
working at Durham Securities in Canada where 827 people lost $5
million. For that he served six months and was ordered to
repay $837,000 after pleading guilty to four counts of fraud.
Still pending is his U.S. trial for defrauding Americans as far
back as 1990 in schemes which sold grossly inflated metal commodities
such as indium and germanium.
Given the Rubber Boot
On August 21, 2001, the Thailand
SEC filed a criminal complaint against Heliocentric International
Co., Ltd., Vladislov Ivanov Patrov, Roy Danny Kamiew,
Brian Hare and Mark Pavic on the grounds that they
conspired to conduct unlicensed securities businesses in Thailand
under the name of the Wellington International.
The fancy office location promoted
in their brochures was simply a switchboard service to their forty
phone line, low rent boiler-room.
Following a raid in May, seventeen
foreigners were arrested for having no work permit and the documents
seized as evidence determined that the location was used to phone
and lure overseas investors into making investments in yet another
overseas market.
Look out for these companies
I have a list of scam companies
that I want others to look out for. Do not trust them. I lost
over $10,000. The names are: WMA, Jeff Paul, Jake Bernstein Trading
Company, Carlton Sheets, Dan Kennedy, Ted Warren Stock Portfolio
and Dundas System.
Anne Bolander 08/17/02
Scammers operating worldwide based in Cambodia
PHNOM
PENH, Cambodia (Reuters) -- 07/21/03 A
gang of 20 foreigners accused of running a hi-tech international
telecoms and investment "boiler room" scam out of Cambodia
have been expelled from the country, according to police.
The group of 14 Britons, two Americans,
an Australian, a New Zealander, a Thai and a Filipino, were rounded
up last week in a military police swoop on an office block in
the heart of Phnom Penh, capital of the impoverished southeast
Asian nation.
Investigators said they had found
stacks of computers and hi-tech hardware, including a $100,000
broadband Internet server they said had been used to build an
illegal international telephone gateway.
Using this, the alleged conmen
were cold-calling unsuspecting people across the globe virtually
for free to try to get them to put their money in risky or non-existent
investments, police said.
Legal experts said war-ravaged
Cambodia probably lacked the relevant financial or telecoms laws
to launch a full prosecution of the gang.
The telecoms ministry, however,
said it had been cheated of $27,278 in international call charges
and insisted on repayment.
"They have paid the bill and
all of them left on Saturday," said Chhay Sinarith, deputy
chief of police in Phnom Penh.
It's full steam ahead for `boiler
room' con artists
The premise of financial
scams is human greed and although gullible customers get fleeced
of small fortunes, many boiler rooms are not nearly as greedy
as the investors they con
By John Aglionby THE GUARDIAN ,
LONDON - Jul 26, 2003
The three watches on the man's
wrist were all set to different time zones. One gave the time
in New Zealand, the second in South Africa and the third in New
York. On the table in front of him were three mobile phones, one
for each group of customers in each of the three countries, who
all thought they were calling him locally. He was actually in
Taiwan.
The man with the watches, a Briton
known as "Mr Big," showed a second man sitting opposite
him a fax he had just received, the contents of which left little
to the imagination. "It basically said: `I'm going to come
over there and I'm going to kill you. I'm going to kill all your
family unless I get my money back. I've spent this much money
with you.' It was really horrible," says the second man,
who gives his name as Barry Stephens.
"Let me show you something,"
Mr Big continued. He picked up one of the phones, dialled the
number on the fax and checked his watches.
"Mr So-and-so, I've just got
your fax this morning," Stephens quoted Mr Big as saying.
Once the torrent of invective at the other end of the line had
subsided, Mr Big reportedly continued: "Look, sir, we're
a brokerage company. We can't guarantee you're going to make money.
"Stocks go up and down. You're
a man of the world, you know that. But what I can tell you is
that I have another opportunity here... "
According to Stephens, "The
conversation ended with the man agreeing to send another US$20,000
after he had just sent him a fax saying he was going to kill him."
The incident he describes is a
snapshot of the world of boiler rooms, where members of the public
send complete strangers who claim to be stockbrokers vast sums
on the promise of making massive and rapid returns.
More than 75 percent of investors
end up losing all their money. Despite gaining worldwide publicity
in 2000 with the release of the Hollywood blockbuster Boiler
Room, starring Giovanni Ribisi, Vin Diesel and Ben Affleck,
thousands of people continue to get conned every year.
Stephens, who claims he was "intimately
involved" in Mr Big's brokerage for several years, approached
The Guardian after hearing that a suspected boiler room
was shut down in Cambodia last week. He claims he wants to expose
for the first time the full details of how boiler rooms have fleeced
tens of thousands of people all over the world in the past decade,
to help prevent others from a similar fate.
Out of fear for his safety -- one
man who allegedly double-crossed a former boiler-room partner
was gunned down in his BMW in Bangkok last year -- Stephens has
asked that his real name not be used.
The premise on which all boiler
rooms operate is human greed, he says.
"People think they're going
to turn US$10,000 into US$100,000 by doing nothing. They don't
think, it's too good to be true. They don't stop to think, if
it's so great why are you telling me about it? Why am I so special?"
he said.
Stephens says the operation he
witnessed succeeded through an elaborate web of deception, fraud
and highly refined, high-pressure telephone sales tactics in which
most people didn't realize they had been snared until it was too
late.
The "sting" would begin
with a harmless call from a sweet-sounding, usually female, voice
known as a "qualifier." She (or he) would ask if the
company's database records were still accurate and offer a free
subscription to a company newsletter, says Stephens.
The target would receive this glossy
newsletter for several weeks. It was usually up to 24 pages long
and contained a selection of business news. Among the genuine
features, it would contain one article, often very small, about
a company developing a new product or process. This company would
have been bought by the boiler room, and listed on the NASDAQ,
where the requirements are much less stringent than the New York
or London stock exchanges. The boiler room would then start to
inflate the share price.
"But before they do that --
say when the price is US$2 a share -- a broker would come to you
and say, `Look, I represent [the boiler room],'" Stephens
says. "We have some inside information, a bit naughty, shouldn't
tell you, but this stock is going to go through the roof in the
next two weeks." Among techniques used to convince male waverers
were arguments such as: "Who wears the trousers in your family?
Do you make the decisions, or your wife?"
These callers are known as "openers."
Some victims would send the money straight away but those who
didn't would receive a call a couple of weeks later from their
"opener," who would point out that the money had not
been sent but the stock had continued to climb -- because the
boiler room had continued to manipulate it.
He, or she -- Stephens says women
"brokers" are usually much more successful -- might
offer to backdate the transaction so the investor could "buy"
at the original price. With an offer like this, coupled with a
little research showing that the stock had indeed performed as
claimed, most people were hooked.
"But that's the last they
hear about it," Stephens says. "They don't get any stock
certificates, they don't get anything. So these people will eventually
call back. They'll watch the NASDAQ and see the stock price go
down because no stocks were ever bought, the money just went into
the back account and that was it. Thank you very much."
Some people who call back in a
panic are put through to a "cooler." Their task is to
cool down the customer before putting them through to a "loader."
Their job is to persuade the anxious investor that the share price
has fallen because the company has encountered a hitch but that
everything is on track, and it would actually be better to buy
more stock while it is cheap rather than sell.
Others who call are just given
the run around; told that their original "opener" is
no longer at the company. "Eventually, 90 percent just go
to sleep," Stephens says. "In other words, they just
get fed up and write off the money."
Those who don't give up and start
making threats are connected to the best "coolers."
Sometimes the brokers will then try and fob off the investor by
saying that there are no buyers at present and they should call
back.
"The most threatening people
were allowed to get some, or all, of their money back, though,"
Stephens says. "But the coolers were only ever allowed to
return the money of 25 percent of the people who demanded their
money back."
When too many people started complaining
the company would just shut down and reopen under a different
name, often less than 24 hours later. Mr Big's boiler room went
through several incarnations before he was caught. He is now in
prison. Police found a dozen passports in his possession when
he was arrested.
The final category of boiler-room
employee are the "sloppers." They come into the picture
when a firm closes and changes its name. A slopper will call up
a worried investor and say he has heard about his or her plight
and wants to help recover their money. In order to do this there
will be a fee, depending on the size of the original investment.
The irony is, says Stephens, that,
relatively speaking, many boiler rooms are not nearly as greedy
as the investors they con. He thinks about US$2 million his boiler
room raked in each month went on expenses. He saw one monthly
phone bill for US$450,000 that was about two inches thick, and
he knows that tens of thousands of pounds went into making the
company and its operations appear genuine.
"If you went to the company
you would have sat down with a broker, sat down with a manager
and you would have been convinced this was genuine. They would
have bombarded you with pedigrees and testimonials.
"Meanwhile, in the same building,
there's the boiler room. They're all in shorts -- some guys are
standing on their heads doing yoga, taking the piss, bouncing
baseballs off walls and catching them while talking on headsets.
"They have all the objections
on the wall, pasted up. Anything anyone might say, below it is
the stock answer in order to get by."
Most of the people involved were
Jekyll and Hyde characters, Stephens says. On the phone they appeared
the epitome of decorum, the reality was different. "These
are the dregs of the earth, drug addicts, wasters, used-car salesmen,"
he says. "If you met them in person you wouldn't buy a box
of matches from them. You wouldn't talk to them at a bar. But
over the phone they've got it."
Victims corroborate Stephens's
claims. In 1997 and 1998, an Australian named Lance (he is too
embarrassed to allow his surname to be printed) was persuaded
by a broker to part with more than ?8,000 (US$12,923) to buy shares
in two companies allegedly on the cusp of greatness.
"No pressure was put on me,"
he says. "They just went for the soft sell and I bought 1,000
shares of each."
He received share certificates
but has no idea whether they are genuine. Three months later,
when the shares started losing value rapidly, he tried to sell,
but the broker had ceased operations and its accounts had been
passed on to a second broker. Lance said this firm was initially
just as convincing as the first.
"They even sent round a representative
but as soon as I pressed them they, too, dropped away," he
said.
Two years later, in August 2000,
Lance was suddenly contacted by a third broker.
He convinced Lance to send him
the share certificates so he could sell them to people wanting
to negatively gear their stock portfolios for tax purposes by
buying the worthless stock and selling blue-chip shares in return.
"I gave up when [the broker]
insisted I buy the blue-chip shares first," he said. "It's
stupid to do it once, it's insane to do it again."
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