Raids Close Alleged Boiler Rooms : Scam: Investigators said 32 telemarketing firms bilked more than $50 million from investors through bogus oil and gas deals.
A network of boiler-room operators in Southern California has been put out of business because the alleged scammers got scammed themselves.
Investigators from 16 states said Thursday that they set up their own phony boiler room to uncover 32 fraudulent telemarketing firms--mostly in Los Angeles--that preyed on fears about the Persian Gulf War to bilk more than $50 million from investors through bogus oil and gas deals.
The alleged boiler rooms were raided over the last 10 days as part of an eight-month undercover sting operation by 16 state securities agencies investigating boiler room telephone sales operations in Los Angeles, Dallas and Salt Lake City.
“We believe that we have finally turned the corner on the problem of telemarketing fraud in Southern California, which was giving this area the embarrassing reputation of being the fraud capital of the United States,” said Bill McDonald, chief of enforcement for the California Department of Corporations.
The schemes targeted by investigators included high-pressure telephone sales pitches from allegedly phony securities dealers offering sky-high profits resulting from the oil price jumps spurred by the Gulf conflict.
Unsuspecting investors--many of them retirees--often invested upwards of $20,000. Investigators say they have little chance of ever getting their money back.
“The promoters of (these deals) were stuffing their pockets with thousands upon thousands of dollars in investor funds each week,” said John R. Perkins, Missouri securities commissioner and president of the North American Securities Administrators Assn., which represents state securities agencies.
Telemarketing fraud has become endemic in the United States because of advances in telephone technology and computer-generated marketing data bases, according to the National Consumers League, a Washington-based public-interest group.
The league estimates that telemarketing fraud is a $15-billion-a-year business that encompasses everything from stock schemes to shop-by-phone pitches where buyers pay hundreds of dollars for worthless mega-vitamins.
“Unfortunately, the enforcement in some areas has gone down because the FBI is focusing on drug dealers,” said Linda Golodner, executive director of the league.
But McDonald said a crackdown by law-enforcement agencies on Southland boiler room operations over the past four years has reduced the number of phone scams by 66% to 75%. “These raids show that they are much smaller than the ones we saw a few years ago,” he said.
In the latest roundup, 10 arrests have been made so far by state securities regulators, who said they expect as many as 30 prosecutions from the sting operation. The sting began in August, shortly after Iraq invaded Kuwait. The investigation was financed by the securities administrators’ group and the Leviticus Project Assn., a federally funded project that assists states investigating financial swindles.
The sting began when investigators created a phony telemarketing firm that solicited promoters of oil and gas schemes.
After reviewing 138 offerings, the investigators focused in on about 35 suspect firms, most of which relied on the Gulf crisis in promoting their investment schemes.
“The pitches we heard invariably described the crisis in the Middle East as a guarantee that the price of oil would go as high as $60 a barrel and promised investors an interest in oil properties to allow them to cash in on this expected bonanza,” McDonald said.
In fact, oil prices peaked just over $41 in October and then tumbled to the $18 to $21 range, where they remain.
Investigators are not sure how many people lost money, but they estimate that at least 3,500 victims in all 50 states invested over $50 million in the oil and gas scams. Investments on the order of $5,000 were most common, they said, but in some cases people lost over $100,000.
One woman in Lakeland, Calif., invested a total of $170,000, nearly all which she lost.
TELEMARKETING RAIDS Search warrants served recently on Southern California telemarketing operations:
Name City Investment KYA Corp. Irvine oil/gas Mid Continent Financial Irvine oil/gas Gold Star Petroleum Yorba Linda oil/gas Panda Resources Inc. Ventura notes/stock Blasanne Inc. Ventura oil/gas Blasanne Resources Inc. Ventura oil/gas Bison Oil Ventura oil/gas Bison Inc. Ventura oil/gas Bison Securities Ventura oil/gas Getty Oil Unit Invest. Trust Ventura oil/gas Niagara Land & Resources Ventura oil/gas Coastal Financial Group Thousand Oaks notes Lujon-Knighton & Assoc. Thousand Oaks notes Knighton Investment Group Thousand Oaks notes Visual Enterprises Thousand Oaks notes Visual Promotions Thousand Oaks notes Eshoo Los Angeles oil/gas Obed Oil Los Angeles oil/gas Century Oil Los Angeles oil/gas J.R. Halder Inc. Agoura Hills oil/gas RHM Securities Agoura Hills oil/gas Riata Energy Agoura Hills oil/gas Halder Panhandle Partners Agoura Hills oil/gas Halder Hugoton Partners Agoura Hills oil/gas RH Moulton Securities Agoura Hills oil/gas Longhorn Energy Agoura Hills oil/gas
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