High flyers' divorce proceedings expose world of `boiler room' investing
VANCOUVER - For more than a decade, Vancouver businessman Mark Harris made a fortune running boiler rooms high-pressure telephone stock sales operations in Europe and Asia. Unfortunately for his net worth, his wife Lori made a career out of spending it.
By CanWest News ServiceMay 14, 2006
VANCOUVER - For more than a decade, Vancouver businessman Mark Harris made a fortune running boiler rooms high-pressure telephone stock sales operations in Europe and Asia. Unfortunately for his net worth, his wife Lori made a career out of spending it.
From 1986 to 1997, Harris worked in phone rooms that used high-pressure methods to sell stocks, mostly of dubious value, to people all over the world. Initially, he manned the phones himself, but eventually he became involved in setting up and overseeing the sales operations.
For various reasons, some of them regulatory, he moved often: from Spain, to Hong Kong, to Macau, back to Hong Kong, then to the Philippines, California and finally Vancouver. Throughout most of this period, he worked closely with Bryant Cragun, owner of a boiler room operation that was called Oxford International Management.
Wherever he went, Lori followed.
It was a nomadic existence, but it had its rewards. In his peak earning years, he made more than $500,000 US per year.
Neither of them were shy about spending it.
They employed a maid, a gardener, a chauffeur, even a dog-walker. Every year, for Lori's birthday, they went to Italy. During the beach season, they spent weekends on Boracay Island, about 90 minutes from Manila.
Aside from the occasional modelling job, Lori Harris did not work. She took Spanish lessons, she played tennis, she flew to Hong Kong to have her hair done. But mostly she shopped.
When her credit card at Saks Fifth Avenue exceeded her limit, she simply opened another account and purchased an $8,000 full-length mink coat.
She shopped so much that she hired a personal shopper to help her.
In 1995, the couple began construction of a mansion on an acre of land in Osoyoos, B.C., almost 400 kilometres east of Vancouver. The project, originally budgeted at $500,000, ballooned to $3 million.
In 1997, Harris returned to Vancouver to provide investor relations services for many of the same companies he had been selling by phone. Business was initially good, but by 2000 the market had collapsed. His income was decimated and his marriage in shambles.
In 2002 they separated.
Unable to agree on a division of assets, the couple went to court. In a 10-day trial earlier this year, and in a 14-page decision released just days ago, their private lives were laid bare, providing unique insight into the controversial and lucrative business of boiler room operators.
Not mentioned in the decision are the people who bought stock from Harris's telemarketers. According to newspaper accounts, court records and securities filings, many of them lost substantial amounts of money.
One was Guy Fletchere-Davies, a 62-year-old carpet manufacturer in Melbourne, Australia. He told the Wall Street Journal in August 2000 that he bought shares of ZiaSun Technologies Inc., which traded on the dreadful OTC Bulletin Board in the U.S., and several other junior stocks, from the Manila office of Oxford International Management, where Harris ran the telemarketing operation.
Fletchere-Davies said his brokerage account was passed around among several Oxford salespeople, then to a successor firm. In late 1999, ``the phone calls stopped and the paperwork dried up.'' ZiaSun collapsed and he lost $150,000.
By this time, Harris had left Oxford and at Cragun's behest he had set up an investor relations business, Veritas Marketing & Communications Group Ltd., with offices in Vancouver and Solana Beach, Calif., to help promote ZiaSun and other stocks Oxford was selling.
Oxford and Veritas have since shut down and Cragun has reportedly retired, but Harris continues to provide investor relations services through a private firm, Skylla Capital Corp., which operates out of a corner office in downtown Vancouver.
Harris denies any of his business activities have been predatory:
``Every company I have been associated with was fully registered, and all the companies we recommended were legitimate,'' he said in an interview this week.
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According to the divorce action, Harris, 49, was born and raised in Calgary.
He dropped out of school in Grade 11 and worked at a steel mill, as a truck driver, at McDonald's and as a car salesman.
In 1986, he met and married Lori, seven years his junior. He began training as a stock broker, then a friend offered him a job with a firm called Indigo Investments in Torremolinos, Spain.
``He immediately began work as a telemarketer persuading prospective clients to purchase stock in companies,'' Judge Linda Loo noted in her judgment.
It was clear he had an aptitude for the job, and he worked in several operations.
In 1990, Harris arrived in Hong Kong and teamed with Cragun, a former senior vice-president with Goldman Sachs, in another telemarketing operation.
Within months, however, Hong Kong regulators stepped in and the phone room was shut down.
No reason was given.
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The following year, in April 1991, Cragun established another telemarketing business in the Philippines, Oxford International Management, which styled itself as a ``U.S. equity fund manager.''
He hired Harris to manage the phone room, with huge success.
Within four months, Harris was making $10,000 US per month, plus a percentage of sales. By 1993, the firm had grown to 50 employees and he was making more than $250,000 US per year. By 1995, the firm had offices in Spain, Brussels, Taipei, Indonesia and Bangkok, and he was making $500,000 US annually.
Life was good. He and Lori travelled extensively.
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Oxford had a stable of junior companies that it organized, financed and promoted to retail investors. Among them were ZiaSun Technologies Inc. and Chequemate International Inc.
Both were listed on the OTC Bulletin Board, a trading forum that is virtually unregulated. In fact, prior to 1999, bulletin board companies didn't even have to issue financial statements.
ZiaSun and Chequemate financed their businesses by selling large blocks of stocks to foreign purchasers under a U.S. securities rule known as Regulation S.
Under this rule, issuers can avoid going through the onerous process of a registered stock offering by placing the shares with ``accredited investors'' outside the country. The condition is that these shares cannot be sold back to U.S. investors for at least a year.
Harris rejects the characterization of Oxford as a ``boiler room.''
He said the companies that Oxford recommended were all legitimate companies and a lot of Oxford clients made money. ``I bought IBM and lost a lot of money on it. It's all based on timing,'' he said.
He also said neither he nor Cragun have ever been accused of wrongdoing.
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But the gravy train was coming to a halt.
By 1996, Oxford had more than 10,000 clients, but according to Loo, the stock market had turned and Harris ``was forced to deal with unhappy investors.''
Cragun opened an investment banking business in San Diego and invited Harris to join him. In October 1997, Mark and Lori moved to Del Mar, just outside San Diego, and rented a 3,200-square-foot ocean-view home for $4,750 a month.
Within a few months, Cragun decided he wanted Harris to help him support the public companies that he was promoting. So Harris incorporated Veritas Marketing & Communications with offices in Vancouver and Solana Beach. He commuted back and forth, spending Tuesdays to Friday in Vancouver, and Saturday to Monday in Del Mar.
Veritas provided investor relations services for several companies, including ZiaSun. At its peak, it had 20 employees, but it was not a lucrative enterprise. Harris was paid in shares, which initially soared in value, but by the time they became free-trading, the share price had collapsed. ZiaSun, for example, rose to $30, but plunged to 30 cents by the time they werecleared for trading.
In 2001, Harris's total income slumped to $10,000, but Lori could not adjust to this new financial reality. As Loo remarked: ``Her passion for high-end designer fashions continued undeterred.'' Among the items she bought, over her husband's objections, was the $8,000 coat.
The following month, in September 2002, they separated.
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Since their separation, Lori has been living in the Osoyoos mansion, but Loo has ordered it be sold and net proceeds divided between them.
She also ordered Mark to pay $150,000 spousal support in two equal instalments in January 2007 and January 2008.
It is not clear what Lori will do
``Mr. Harris has suggested avenues Ms. Harris might explore, such as being a veterinary assistant, because she loves animals, or being a personal shopper, because she has exquisite taste and enjoys interacting with people,'' Loo noted.
However, she added, Lori ``has taken no real steps towards finding work or training because she claims she is too emotionally distraught....''
In 2003, Mark returned to Marbella, Spain, to set up offices for another telemarketing firm called Global Capital Asset Advisors. At about the same time, he began a common-law relationship with Jonni-Colleen Sissons, then a broker with IPO Capital Corp.
In January 2004, Sissons gave birth to their son in Malaga, Spain, and they have since returned to Vancouver. Sissons is now registered with Northern Securities and Mark is pursing his investors relations business through Skylla Capital.
He refuses to say who his clients are: ``I have been advised by my lawyer not to say anything further to you.''
dbaines@png.canwest.com
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