nasaa.org
Contacts: Marc Beauchamp
(202) 737-0900
Denise Voigt Crawford
(512) 305-8306
Douglas F. Wilburn
(573) 751-4136
STATE SECURITIES COPS TURN UP HEAT
ON INVESTMENT BOILER ROOMS
WASHINGTON (July 23, 1998) - State securities regulators have turned up the heat on investment boiler rooms, bringing over 100 enforcement actions.
In recent weeks, securities regulators in 29 states, from Alaska to Florida, have initiated actions, ranging from fines to criminal indictments, against boiler room operators, who are prospering in the shadows of Wall Street's bull market. They are defrauding investors with high-pressure sales of microcap stocks, foreign exchange investments, profits from infomercials-even investments in ostrich meat.
State securities regulators brought 64 actions against 36 firms peddling microcap stocks, 27 actions against foreign currency "bucket shops" and 15 actions against other boiler room operations.
In a typical boiler room, sales people sit shoulder to shoulder at phone banks all day. They cold call potential investors using sophisticated sales scripts and high-pressure sales techniques.
"In this bull market, there's been an explosion of boiler rooms and many investors are getting burned," said Denise Voigt Crawford, Texas Securities Commissioner and president of the North American Securities Administrators Association, Inc. (NASAA), which represents state securities regulators. NASAA estimates there are hundreds of boiler rooms operating across the country, many in the New York City area, Florida and southern California. Added Crawford: "As (Securities and Exchange Commission Chairman) Arthur Levitt said, `Boiler rooms belong in power plants, not in professional brokerage houses.'"
One of the new scams is foreign exchange investments. Con artists typically follow the headlines, in this case offering investors the supposed chance to profit from Asia's currency crisis. In California, in late June, regulators brought actions against 18 firms illegally selling "forex" investments to members of southern California's Asian communities. They were solicited to invest $5,000 to $200,000 to buy foreign exchange instruments supposedly traded in Hong Kong and other markets.
"Microcap fraud," Crawford added, "is now on every regulator's radar screen so the con artists are moving into new products such as foreign exchange. To paraphrase Abe Lincoln, boiler room operators are fooling too many of the people too much of the time."
Investments cover the waterfront--from interests in gourmet coffee shops and internet service providers to ostrich farms. In Nevada, regulators brought criminal indictments against individuals involved with the Sterling Group, which sold supposed interests in the profits from infomercials for products such as water-filled barbells and talking dog tags.
"The original focus of this sweep was microcap stock fraud-following on the successful actions we took last year," said Douglas F. Wilburn, Missouri's Securities Commissioner, who coordinated the multi-state action. "But as we got into it, we realized that microcap fraud, while serious, was in fact just a piece of a larger problem - boiler room sales of investments."
Indiscriminate cold-calling backfired on one boiler room operator, when cold-callers unwittingly telephoned a state securities investigator at the Texas State Securities Board. As a result, regulators in New York froze $750,000 of the firm's assets. Often firms try to cash in on seemingly respectable names. For example, South Dakota took an action against a foreign exchange operation called Trump Financial.
In the sale of microcap stock, a big problem, according to regulators, is unauthorized trading. Regulators in Utah, for example, brought an action against J.P. Turner & Company based on a complaint by an investor, a pilot for Delta Airlines, who alleged three unauthorized trades. Regulators obtained trading and phone records from J.P. Turner. Tickets for the disputed trades were stamped at 2:54 p.m. and 2:55 p.m. Eastern time. The pilot's log showed that he landed at 3:19 p.m. at Atlanta after a trans-Atlantic flight from Germany. "Pilots usually don't talk to their brokers when they're on final approach," said Tony Taggart, Acting Director, Utah Division of Securities. For this and other securities violations, Utah is seeking to revoke J.P. Turner's license and fine the firm $250,000.
Losses to individual investors can be crushing. A 78-year old investor in Arkansas was persuaded by a cold caller from Atlanta-based Argent Securities to sell his blue-chip portfolio and invest in microcap stocks. His eventual losses came to more than $440,000.
The bull market on Wall Street has made it easier for boiler room crooks to operate, said Crawford. "When the big mutual funds are showing annual returns of 30-40 percent or more, the idea that you can double your money in a short time, as these con artists promise, doesn't sound so ridiculous."
Investors should be on guard against boiler room sales people, who prey on business people and professionals like doctors and lawyers as well as retirees, using telephone lists of potential "hot prospects."
Regulators warn investors never to buy anything over the telephone from a stranger without thoroughly checking out the investment and the person and firm selling it. Don't succumb to pressure to "buy now." "If it's a really good investment, it will be a good investment next week or next month-after you've done your home work," said Missouri's Wilburn.
Investors can check out the investment, the sales person and their firm by contacting their state securities regulator. Addresses and phone numbers are available at the NASAA web site (www.nasaa.org) or by calling 202/737-0900.
Investors have rights when it comes to dealing with cold callers selling stocks. Under industry rules, investors can't be called before 8 a.m. or after 9 p.m. and they can demand that their name be put on a brokerage firm's "do not call" list.
If investors suspect they have been defrauded by a boiler room operator, they should contact their state securities regulator. "Individuals should not be embarrassed about being ripped off," said Crawford, "we need people to come forward so we can use their experiences to prevent other people from being victimized."
BOILER ROOM/MICROCAP ACTIONS
Microcap Statistics
State Firm Action
Alabama The Minneapolis Company Denial of Registration
Alabama AIBC Investment Services Corporation Order to Show Cause to Revoke License
Alabama Morgan Grant Capital Corp. Summary Suspension
Alabama LCP Capital Corp. (formerly Lexington Capital Partners & Co.) Order of Suspension
Alabama GKN Securities Order to Show Cause to Revoke License
Alabama Meridian Equities Co. Denial of Registration
Alabama Duke & Co., Inc. Cease & Desist Order
Alabama Bennett, Mullaney & Company, Inc. Order to Show Cause to Bar Firm from Registration
Alabama Briarwood Investment Counsel Denial of Registration
Arkansas Argent Securities, Inc. Complaint Seeking Revocation of License
California Biltmore Securities Surrendered Broker/Dealer License
Delaware Lexington Capital Corp. Summary Order to Postpone Registration, Complaint Seeking Denial filed
Delaware Duke & Co., Inc. Complaint filed seeking revocation
Delaware Americorp Securities, Inc. Complaint Filed to Revocate License
Delaware La Jolla Capital Corp. Complaint Filed to Revoke License, Summary Suspension
Delaware Royal Palm Investments, Inc. f/k/a PCM Securities Ltd., L.P. Complaint Filed to Revoke License, Summary Suspension Pending
Florida Royal Palm Investments, Inc. f/k/a PCM Securities Ltd., L.P. Administrative Complaint Seeking Revocation
Georgia Argent Securities, Inc. Notice of Proposed Administrative Revocation of License
Georgia J.P. Turner & Company, L.L.C. Notice of Proposed Administrative Revocation of License
Illinois Hillcrest Financial Group Revocation of License
Indiana Merit Capital Association Consent Agreement & Censure
Indiana Wise Choice Discount Brokerage, Inc. Summary Suspension of License
Indiana Sauceda & Granville Securities, Inc. Complaint Filed to Revoke License
Indiana La Jolla Capital Corp. Administrative Complaint Seeking Revocation
Indiana San Clemente Securities, Inc. Summary Suspension of License
Kansas Meyers Pollock Robbins, Inc. Revocation of Broker/Dealer License
Kansas Duke & Co., Inc. Notice of Intent to Revoke License
Maryland Wise Choice Discount Brokerage, Inc. Revocation of License
Maryland Duke & Co., Inc. Revocation of License
Maryland Meyers Pollock Robbins, Inc. Revocation of License
Massachusetts Duke & Co., Inc. Revocation of License
Massachusetts Royal Palm Investments, Inc. f/k/a PCM Securities Ltd., L.P. Complaint Filed to Revoke License
Massachusetts Brauer & Associates, Inc. Complaint Filed to Revoke License
Massachusetts The Heritage Group, Inc. Complaint Filed to Revoke License & Fine & Rescission
Missouri Continental Broker-Dealer Cease & Desist Order
Missouri M.A. Gillespie Investment Corp. Cease & Desist Order
Missouri Millenium Securities Corp. Cease & Desist Order
Missouri J.P. Turner & Company L.L.C. Cease & Desist Order
Missouri La Jolla Capital Corp. Cease & Desist Order
Missouri LCP Capital Corp. (formerly Lexington Capital Partners & Co.) Cease & Desist Order
Missouri Boston Group, L.P. Cease & Desist Order
Missouri Royal Palm Investments, Inc. f/k/a PCM Securities Ltd., L.P. Cease & Desist Order
Missouri Toluca Pacific Securities Corp. Cease & Desist Order
Missouri SFI Investments, Inc. Cease & Desist Order
Nevada Duke & Co., Inc. Revocation of License
New Hampshire First American Equities, Inc. Complaint Filed to Revoke License
New Hampshire LCP Capital Corp. (formerly Lexington Capital Partners & Co.) Consent Order-withdrawal from state, $30,000 Fine & $10,000 restitution
New Jersey Meyers Pollock Robbins, Inc. Consent Order Revoking License
New York Stone Asset, Inc. Civil Complaint Seeking Restitution
New York J.P. Michaels Associates Civil Complaint Seeking Restitution
New York Abbey-Ashford Securities Civil Complaint Seeking Restitution
Ohio Duke & Co., Inc. Summary Suspension of License
Ohio La Jolla Capital Corp. License Renewal Refused
Ohio Royal Palm Investments, Inc. f/k/a PCM Securities Ltd., L.P. Summary Suspension & Intent to Revoke License
Ohio Wise Choice Discount Brokerage, Inc. Summary Suspension & Intent to Revoke License
Ohio Meyers Pollock Robbins, Inc. Summary Suspension & Intent to Revoke License
Oklahoma La Jolla Capital Corp. Filed for Cease & Desist Order & Civil Penalties
Oklahoma Lloyd Wade Securities, Inc. Filed for Cease & Desist Order & Civil Penalties
Texas Duke & Co., Inc. Notice of Hearing to Revoke Registration
Texas La Jolla Capital Corp. Notice of Hearing to Revoke Registration
Utah Argent Securities, Inc. Complaint Filed to Revoke License
Utah J.P. Turner & Company L.L.C. Complaint Filed to Revoke License
Utah Joseph Stevens & Company Complaint Filed to Revoke License
Washington Duke & Co., Inc. Summary Suspension & Seeking Revocation of License
21 States-AL, AR, CA, DE, FL, GA, IL, IN, KS, MD, MA, MO, NV, NH, NJ, NY, OH, OK, TX, UT, WA 36 Firms 64 Actions
Boiler Room Statistics
State Firms Actions
Alaska ACC Communications Cease & Desist Order
Colorado Affordable Media, LLC dba Sterling Group Temporary Restraining Order
Colorado Venture Capitalization Company Temporary Restraining Order
Illinois International Brands, Inc. Temporary Order of Prohibition
Michigan R & R Insurance Services Investment Management, Inc. Cease & Desist Order
Nevada Affordable Media, LLC dba Sterling Group Criminal Complaint
New York World Interactive Gaming Corporation Froze Assets of $750,000
North Carolina Affordable Media, LLC dba Sterling Group Summary Order to Cease & Desist
South Dakota Capital Enhancement Association of America Cease & Desist Order
South Dakota Agkoda Hodlings, Inc. Cease & Desist Order
Wisconsin Robo Enterprise Inc. Consent Order of Prohibition & Revocation
Wisconsin Financial Growth Consultants, LLC dba Sterling Marketing Group Summary Order of Prohibition & Revocation
Wisconsin Global Financial Instruments Summary Order of Prohibition & Revocation
Wisconsin North American Medical Products Inc. Summary Order of Prohibition
Wisconsin Lean-Farm Meats, Inc. Summary Order of Prohibition
9 States-AK, CO, IL, MI, NV, NY, NC, SD, WI 12 Firms 15 Actions
Foreign Exchange Statistics
Arizona Eastern Vanguard Forex Ltd. Complaint Alleging a Fraud, Seeking Relief & a Fine
Arizona Forex Investment Services Corporation Complaint Alleging a Fraud, Seeking Relief & a Fine
Arizona Y & T, Inc. dba Tokyo International Investment Ltd. Complaint Alleging a Fraud, Seeking Relief & a Fine
Arizona Eastern Vanguard Group Ltd. Complaint Alleging a Fraud, Seeking Relief & a Fine
California Currex International Corporation Cease & Desist Order
California Golden Capital International Financial, Inc. Cease & Desist Order
California Noble Wealth, Inc. Cease & Desist Order
California Newport Chase Trust Capital Growth of Newport Beach Cease & Desist Order
California Newportchase International, Inc. Cease & Desist Order
California General Financial Cease & Desist Order
California Cash Investment Group Cease & Desist Order
California Delong Foreign Exchange, Inc. aka DVX, Inc. Cease & Desist Order
California China Development Group Corp. Cease & Desist Order
California Morex Financial, Inc. Cease & Desist Order
California Centrex Management, Inc. Cease & Desist Order
California CMI, Inc. Cease & Desist Order
California Fortrex Management Corporation Cease & Desist Order
California Global Risk Management Cease & Desist Order
California Optima Financial Services Cease & Desist Order
California Draco Trading, Inc. Cease & Desist Order
California TDM Global Exchange Cease & Desist Order
Idaho Options Trading Group Cease & Desist Order, $100,000 civil penalty
Indiana Risk Capital Management $15,000 Civil Fine
Indiana AFX Foreign Exchange, Inc. Cease & Desist Order
South Dakota Trump Financial Group, Corp. Cease & Desist Order
South Dakota International Capital Management, Inc. Cease & Desist Order
South Dakota Cen-Tex Alchemy Guild Cease & Desist Order
5 States-AZ, CA, ID, IN, SD 27 Firms 27 Actions
TOTALS
29 States 75 Firms 106 Actions
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