Boiler Room Rogues Turn on the Heat aarp.org
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Interview with Ben Younger | Bradley Skolnik
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Vin Diesel in the new movie "Boiler Room"
By Susan L. Crowley
Beware of phone calls from strangers peddling stocks as once-in-a-lifetime opportunities that "you absolutely must buy-right now."
If you have any doubts about the perils of such purchases, see the recently released film "Boiler Room," a raw and disturbing account of the sleazy stock scams that each year swindle thousands of unsuspecting investors of their savings, sometimes ruining their lives.
Written and directed by a now-27-year-old filmmaker who has had his own encounter with a phony stock operation, the movie couldn't be more timely.
Investment fraud is "on the rise," says Tim Healy, unit chief of the new Internet Fraud Complaint Center at the Federal Bureau of Investigation. "It's starting to become a really big deal."
It's clearly big money. Americans, says Bridget Small of AARP's anti-telemarketing fraud team, lose an estimated $40 billion a year to unscrupulous salesmen pitching everything from phony sweepstakes to fake magazine subscriptions to spurious charities.
And at least $10 billion, experts estimate, is spent on bogus investments-stocks, bank notes, foreign currencies and commodities like rare metals and oil and gas.
Anybody can be taken in, experts say. "The fact of the matter is that victims come in all shapes and sizes," says Bradley Skolnik, president of the North American Securities Administrators Association. But, he adds, older Americans may be especially vulnerable.
Older persons "welcome the seemingly friendly voices of these telemarketers who tell them stories, talk about the weather and give them companionship," says John C. Henry, assistant attorney general in the Investor Protection and Securities Prosecution Unit in the New York State Attorney General's Office.
A sizable portion of the telemarketing calls received by Americans, old and young alike, come from the shadowy, little-known boiler rooms depicted in the new Hollywood movie.
Boiler rooms aren't new. The term is taken from the windowless basement rooms where fraudulent operators once installed-and often still do-their phone banks. Typically, they are jammed with callers using high-pressures sales tactics to push their products.
Nowadays, with cell phones and the Internet connecting brokers with stock and commodities promoters, a boiler room can be as small as one to three people, says Henry.
Like the setup in the new movie "Boiler Room," these fly-by-night operations are just as likely to be housed, even if temporarily, in gleaming structures in the suburbs.
Inside a boiler room
Going inside this fictional boiler room, the movie chronicles the predatory sales activities of rogue brokers who aggressively hawk their wares. "The movie does a very good job of capturing the very dark culture that exists in many of these boiler room operations," says Skolnik.
The movie centers on 19-year-old Seth Davis (played by Giovanni Ribisi) who, desperate to prove to his hypercritical father that he can get a respectable job and make big money, signs on as a trainee at J.T. Marlin, a fictional brokerage on Long Island.
"We want winners here, not pikers," says Jim Young (Ben Affleck), the tough 27-year-old millionaire who trains recruits. "People come to work at this firm for one reason: to become filthy rich."
What the eager Seth realizes too late is that Marlin is a bogus outfit, a boiler room operation where dozens of macho, money-hungry young men frantically work the phones, pitching worthless stock to the "suckers" on their "mooch" lists.
"You're not actually selling stock," says one of Seth's mentors. "You're selling a dream." A dream that can morph into a cruel nightmare when hapless investors bet and lose on a phony deal.
Seth's new world is unsparing. "It's a contact sport, meaning the more people you contact, the better you'll do," the film's trainer advises recruits. "A good broker makes over 700 calls a day."
While such dialogue may seem overblown and melodramatic, it's based on documented reality, says Ben Younger, the writer and director of "Boiler Room." Younger ought to know. He did, in fact, spend two years researching the film.
In an interview with the AARP Bulletin, Younger, a Queens College graduate from Brooklyn who was once headed for a career in New York politics, got the idea for the film after he, like Seth, was urged by a friend to interview at a brokerage.
But unlike Seth, he knew instantly that it was a crooked operation. "The fact that it was all the way out on Long Island [and nowhere near near Wall Street] was the first tip-off," Younger says. "Then walking into the waiting room and seeing all these 17- and 18-year-old kids ... It was obvious."
Experts give Younger's "Boiler Room" high marks for realism. In the film—and in real life—victims are apt to be older. AARP research indicates more than half are over 50.
Younger says he personally knows several "senior citizens" who've lost sizable amounts of money in stock scams. "Someone very close to me … lost a quarter of a million dollars."
As the movie compellingly shows, rogue brokers know whom to call. They know because they acquire "mooch" (from mooched) lists from brokers and telemarketers with names of people who have fallen, or are apt to fall, for scams.
The lists, says AARP's Small, can be compiled from numerous sources such as catalog sales, magazine subscriptions, warranty forms, registration for prizes and Internet transactions.
"The more you buy or show interest, the more valuable your name is," she says.
The dubious 10 percent
Not all of the country's 140,000 telemarketing operations are scams. Indeed, most are honest businesses. But AARP, which is working with law enforcement agencies to combat telemarketing fraud [see box below], estimates that 10 percent of these engage in fraud.
Younger focuses exclusively on that 10 percent. He talked with dozens of brokers to learn the tactics boiler rooms use to bully people into parting with their cash. Here are some of the key ploys "Boiler Room" callers use:
Soften up the customer by making him or her feel part of an elite group getting special service.
Create a sense of urgency. "That's great, doctor, if you want to miss yet another opportunity here," a J.T. Marlin broker tells a customer. "Watch your colleagues get rich."
Don't take no for answer.
Have rebuttals ready for excuses like "I'm not in the market right now" or "send me a prospectus." When one customer says he wants to talk to his wife about buying stock, Seth is belittling, implying that he should be in charge, not his spouse.
Always be aggressive, always push to close the sale. "There's no such thing as a no-sale call," the character Jim Young admonishes the J.T. Marlin recruits. "Either you sell the client some stock, or he sells you on a reason he can't. … The only question is who's going to close: you or him."
The "pump and dump" scams depicted in the film hit close to home, says Frank Marley, a specialist in investor education at the Securities Division of the Arizona Corporation Commission.
In these deals the "brokers" push "microcap" shares of little-known or nonexistent companies, whose shares trade at less than $5. Insiders get the brokers to tout a stock and build a market to hike the price.
When the shares peak, "all these insiders get out and make a profit," Marley explains. "And the investors who had been called by these boiler room people are left holding the bag."
How to Protect Yourself from Telemarketing Fraud
Your own common sense is your first and best line of defense against telemarketing fraud. Hang up the phone if you hear these sales lines:
The deal has no risk and high returns-you can't lose.
You must invest right now.
It's a special deal for select people.
To protect your money from telemarketing fraud:
Refuse to deal with a stranger on the phone making a "cold call." If they won't take "no" for an answer, hang up while they're still talking.
Tell the salesperson you want to check with your state attorney general's office. When you make that call, ask for the phone number for the state's securities agency. Then ask for the registration department and inquire about both the broker and the stock.
Read the fine print before signing any document.
Consult family and friends before you invest.
Guard your personal data, such as your Social Security, credit card numbers and bank account numbers.
For more information and to report fraud, call the National Fraud Information Center at (800) 876-7060 or write to them at: P.O. Box 65868, Washington, DC 20035.
You can also write to AARP for "Telemarketing Fraud"-English version, stock number D16540. A Spanish version is available by ordering stock number D16541. Send a postcard requesting the title and stock number to: AARP Fulfillment EE01409, 601 E St. N.W., Washington, DC 20049.
AARP Joins Effort
to Strike Back
As part of a "reverse boiler room" project on March 29, more than 120 AARP and community volunteers in Atlanta contacted potential telemarketing fraud victims all over the country to enlist their help in a telemarketing fraud case.
Called Operation Strike Back, the event was sponsored by AARP, the Georgia Governor's Office of Consumer Affairs and the Georgia Consumer Fraud Task Force.
Using the studios of Georgia Public Television, volunteers worked dozens of phones calling thousands of people around the country identified as potential targets of a Georgia-based telemarketing fraud operation.
During the 10-hour effort, callers warned people about the dangers of phone fraud and sought to find out if they had already been victimized.
Volunteers called people on a "mooch" list with some 18,000 names. Police obtained the list while investigating a firm that allegedly guaranteed people a credit card for a fee.
Volunteers wanted to find out if individuals, as a result of the offer, sent money and provided private financial information to obtain a credit card. Their answers could be used as evidence in the case authorities are building against the telemarketing outfit.
"This is the first time AARP has participated in a reverse boiler room operation as part of an ongoing criminal investigation," says Kenneth Mitchell, AARP's Georgia state director.
AARP staffers in many different states currently are engaged in a wide range of education efforts-some of them reverse boiler room operations—to alert people to the dangers of telemarketing and investment fraud.
One ongoing operation cosponsored by AARP, the Telemarketing Victim Call Center in Los Angeles, averages 530 calls a day to individuals around the country whose names have been found on boiler room "lead" lists.
Among other messages, the center's volunteer callers warn people about the risks associated with sending money to persons they don't personally know. |
