Hey TRAV, now I know why you were busy. Have you been visited by state regulators?
nytimes.com
Regulators Announce Series of Blows Against 'Boiler Room' Securities Operations
By DAVID BARBOZA
State securities regulators said yesterday that they had brought enforcement actions against 75 brokerage and investment firms across
the country for using high-pressure sales tactics to mislead and defraud investors.
The actions, by more than 29 state regulators, amount to one of the biggest crackdowns ever on "boiler rooms" of telephone salespeople
who prey on gullible or na‹ve investors. The regulators netted about three times as many firms as they did in a similar sweep a year ago.
The targets are mostly small investment houses accused of using fast-talking stockbrokers to push speculative securities and investment
deals, everything from worthless penny stocks to a stake in the profits of an infomercial company that hawks talking dog tags.
The regulators said they focused on boiler rooms because of their stubborn resilience in the current bull market. Boiler rooms, which have
been around for decades, are crowded offices with banks of telephones staffed by brokers, often reading from detailed scripts, who call
investors and pressure them to make hasty financial decisions.
"There's an overwhelming number of complaints related to boiler rooms these days," said Denise Voigt Crawford, commissioner of the
state securities board in Texas, which took part in the crackdown. "Scam artists are following the headlines and pushing worthless
securities."
The state regulators said that in the last few weeks they had filed more than 100 actions, from criminal indictments to small fines, against
75 firms for using abusive sales tactics and fraudulent schemes in peddling micro-cap stocks, foreign exchange investments and even
investments in ostrich meat.
According to the transcript of one call, a broker tried to persuade someone -- who turned out to be an enforcement agent -- to invest in a
speculative initial public offering. The broker played down the speculative nature of the investment. "The risk factor is very simple, you
know, you could lose your money, of course, I mean in anything that you do," he said. "But that's irrelevant because we're looking to see
the stock go up, not down."
Regulators and law enforcement officials say that the length and strength of the current bull market has led many small investors to view big
returns as commonplace and thereby made them vulnerable to brokers selling what they may call the next Intel or Microsoft.
"The bull market has made the work of scam artists much easier," said Ms. Crawford in Texas. "When investors are getting 30 to 40
percent returns on mutual funds, it's not hard to convince them they can make more in penny stocks."
By coordinating their enforcement actions, the regulators say they hope to put a dent in the pervasive fraud associated with boiler rooms
and micro-cap stocks. Taken together, the regulatory actions cast a much wider net than a year ago, when state officials brought similar
actions against individuals and 14 firms, most in the New York area. This time, the coordinated enforcement effort included states like
New Hampshire and Alaska, and a large and growing concentration of boiler rooms was found in California.
In recent weeks, the regulators moved to revoke brokerage licenses, issue cease-and-desist orders, levy fines and shut down brokerage
firms that engage in sales fraud.
It is not a crime for a broker to sell an investor a security that loses value, but it is illegal to guarantee investment returns or to intentionally
mislead investors into buying securities that are clearly unsuitable for them, or even worthless.
"These folks aren't giving the investors the information they need to make an informed decision," said Douglas F. Wilburn, state securities
commissioner in Missouri. "In fact, they're lying to them, promising them guaranteed returns."
While the enforcement actions have curtailed some boiler room operations, regulators say that many boiler rooms continue to operate,
some by moving from place to place and operating under different names. Regulators encourage investors to check a broker's
background with state regulatory agencies and the National Association of Securities Dealers, each of which maintains disciplinary files on
brokerage firms and individual brokers.
Mr. Wilburn in Missouri said many of the defrauded investors made little effort to find out about the brokers or the securities.
"Some of these people are so gullible, so na‹ve," he said. "It's very depressing to find people who believe anything they're told."
Among the companies that were accused of sales fraud were: Biltmore Securities in Fort Lauderdale, Fla.; Duke & Company and
Hillcrest Financial Group, both of New York; Lloyd Wade Securities in Dallas; Royal Palm Investments in Boca Raton, Fla.;
Abbey-Ashford Securities in Tampa, Fla., and the La Jolla Capital Corporation in San Diego.
One company accused of fraudulent sales of foreign currency investments was Trump Financial Group, in Aventura, Fla.
Officials at these firms either offered no comment yesterday or were not available. |
