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Thread: Boiler Rooms and Penny Stock

  1. #1
    wserra is offline Senior Member
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    Boiler Rooms and Penny Stock

    A fellow member of the forum noticed that, on a couple of occasions, I posted that I had represented people charged in boiler room scams. In a PM, s/he asked me to note the factors that indicate fraud in penny stock sales. Rather than reply in a PM, I thought the subject might be of general interest.

    Law enforcement uses the term "boiler room" to apply to an operation engaged in high-pressure telephone sales of penny stocks (technically known as "microcaps", due to their small amount of total assets and outstanding stock) or non-existent stocks. The term refers to the physical setting - a large room, frequently in a basement of an office building, completely filled with cubicles, each with a "broker" and a telephone. While I've never seen one in live action, I've seen pictures of one in live action, and have heard recordings of intercepted live conversations. It's basically chaos. Understanding what they do and why they do it gives the keys to avoiding them.

    First of all, to the extent boiler room scams sell actual stock, those stocks are invariably microcaps, for several reasons. First, microcaps are often hard to research. A microcap company may not even have a website. They frequently won't be registered with the SEC, and therefore will not have publicly-available financial reports. The less outside information available, the better for the scammer. Second, the price of microcap stock is easy to manipulate, because there is so little of it. Any substantial trade will have a significant effect. Third, the boiler room operator will frequently have a deal with the microcap owner, whether increased commissions on sales or outright payments. This, of course, is an automatic conflict - the broker has a stake in pushing particular stock. General Motors is unlikely to agree to such shenanigans. 'Course, the boiler room is a fraud from the getgo, so a little conflict of interest is the least they worry about.

    Second, boiler rooms must turn over stocks, hence the high pressure sales. Microcaps come and go on a daily basis. The non-existent company could be discovered at any moment. Boiler room "brokers" have quotas, and those who don't meet them are tossed. As a corollary, boiler rooms will do everything possible to avoid sales.

    Third, boiler rooms are engaged in one of two fraudulent schemes. Either they pump and dump, or they are a market maker for the stocks they push. In the former, the microcap is real, and the boiler room operator is manipulating the stock price so that he can dump it later, at the expense of his own "investors". In the latter, the boiler room operator is the only person buying and selling the stock, which therefore may well be in a company that only exists on paper.

    Those three boiler room goals predict boiler room behavior. First of all, a boiler room will be pushing one or two stocks, to the exclusion of all others. They will say whatever it takes to get the mark to buy. "The next Microsoft." "Can't miss." "In a month, you'll regret it if you don't buy." They will say nothing negative about those stocks - despite the fact that it's in the nature of a competitive economy that any investment has risks. They will discourage due diligence, for obvious reasons, and claim that they have non-public information in any event.

    Second is the pressure. You must buy now because, for some hastily-spoken reason that (upon reflection) makes little sense, the "opportunity" won't last. They will discourage the sale of the stocks they're pushing.

    Finally, the boiler room will be selling stock you never heard of. If you do a quick google while you're still on the phone, you may find either nothing at all or fake information. These folks rely on greed, not intelligence.

    As in dealing with scams generally, there is a large role for plain old common sense. Why is this complete stranger calling me out of the blue wanting to make me rich?
    "A wise man proportions belief to the evidence."
    - David Hume

  2. #2
    kschang is offline Senior Scambuster
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    Re: Boiler Rooms and Penny Stock

    Here may be a pertinent example.

    I was looking into predecessor of the TelexFree scam, a company known as TelExtreme. Apparently it was hot in Brazil back in 2007, where articles appeared saying it's a MLM and potentially fraudulent.

    In March 2008 or earlier it was acquired by something called "Eagle Ventures International", a holding company, which also owns Environgenix and Hydrate2O (both of which also seem to be MLM companies of some dubious science). There was a lot of talk about it offering VOIP service in the US, big expansion plan, new mangement team, blah blah blah. It was covered in many "microcap stock alert" type websites, but was essentially nothing but press releases.

    In October 2008 Eagle Ventures Intl declared Chapter 11 bankruptcy, and that's the last anyone's heard of them.

    It seems there were probably boilers rooms and such doing a 3-month pump and dump on EVI's stock (it was listed on the pink sheet) then when the stock was driven high enough people dumped and closed the company.
    ---
    A MLM Skeptic (not a Cynic) covering scams, critical thinking, and psychology
    http://amlmskeptic.blogspot.com

  3. #3
    ribshaw's Avatar
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    Re: Boiler Rooms and Penny Stock

    Another trick a boiler room will use is to make a first contact and actually pitch a well known stock to get the account opened. After the account is open, then they will call back with the can't miss opportunity which follows the same script as above.

    Also, there are a lot of puff mailers that go out where someone is paid to promote a stock. In most cases the operators of this scam will sell their stock in to the wave of buyers that occur right after the mailing. I don't get as many as I used to, but have been posting the ones that show up on a thread Blue Wolf Started. Tobin Smith - Honest stock analyst or sleazy stock promoter?
    "It's virtually impossible to violate rules ... but it's impossible for a violation to go undetected, certainly not for a considerable period of time." Bernie Madoff
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  4. #4
    Whip's Avatar
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    Re: Boiler Rooms and Penny Stock

    From what I understand from someone that actually worked in one, the movie Boiler Room is a very accurate portrayal

  5. #5
    ribshaw's Avatar
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    Re: Boiler Rooms and Penny Stock

    Quote Originally Posted by Whip View Post
    From what I understand from someone that actually worked in one, the movie Boiler Room is a very accurate portrayal
    I remember liking this book on the subject. Born to Steal: When the Mafia Hit Wall Street: Gary Weiss: Amazon.com: Books.

    The audio version of the Wolf of Wall Street was not too bad for what it was, much like Boiler Room in delving in to the excess and trickery of the lifestyle.
    "It's virtually impossible to violate rules ... but it's impossible for a violation to go undetected, certainly not for a considerable period of time." Bernie Madoff
    https://www.facebook.com/pages/Scam-...98399986981403

  6. #6
    NikSam is offline AntiCon Artist
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    Re: Boiler Rooms and Penny Stock

    Another nice trick how to convince skeptics over the phone.

    Boiler room operator has a list of let say 500 numbers who backed of from previous sales.
    He calls and says -
    "Let me demonstrate how good we are in picking the right stuff, no money needed, just watch stock XXXX, it will go up in a week"

    Each is given a random stock to watch, and operator records what he said to whom.

    A week later they check which stocks went up, and cross ones which went down of the list.
    They call like 250 remaining marks to whom they were right and say "still not convinced ? watch this another stock XXXX will go up in the next week"

    They do that till the list is worked down to like remaining 10 marks, who now convinced the operator can predict any stock.
    And you can convince them to buy anything at this point, even sell their house and buy a cool stock.
    Last edited by NikSam; 07-14-2013 at 07:43 PM.

  7. #7
    ribshaw's Avatar
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    Re: Boiler Rooms and Penny Stock

    Broward “boiler room” sold $2 million in fake precious metals; two arrested


    Manule Frade, 38, arrested for allegedly selling fake precious metals out of Hollywood boiler room. Broward Sheriff's Office

    BY MIAMI HERALD STAFF

    Two men have been arrested for operating a Hollywood boiler room operation that allegedly sold fake precious metals totaling more than $2 million to investors across the country, many of whom were senior citizens.

    Manuel Frade, 38, of and Angel Quinones, 53, were arrested last week by the Broward Sheriff’s Office and charged with one count each of organized fraud and grand theft and two counts of securities fraud in connection with the scheme, according to Florida Office of Financial Regulation, which announced the arrest on Monday as part of a months-long investigation by the OFR.

    The Broward County State Attorney’s Office is prosecuting the case.

    Frade and Quinones are accused soliciting investors through their Hollywood-based company, Integrated Market Capital Investments, doing business as Midas Asset Exchange in Hollywood. After making the investment with Midas Asset Exchange, investors typically received account statements showing the alleged purchase of metals.

    Investors claimed that Frade and Quinones led them to believe that the metals listed on the account statements would be stored for them in a vault or other safe place until such time as they desired to sell.

    The investigation revealed that only a small portion of investor money was used to trade possessory rights to precious metal inventory, and none of it was used to purchase or store the physical metals. Instead, the majority of the money obtained from investors is alleged to have been used to pay business expenses and for the personal benefit of Frade and Quinones.

    “Thanks to the effective partnership between the OFR and the Broward County State Attorney’s Office, these alleged criminals can no longer continue to target our nation’s senior citizens by attempting to separate them from their hard earned dollars,” said OFR Commissioner Drew J. Breakspear, in a news release.

    “The best way to protect your money is to first do your homework,” said OFR Commissioner Breakspear. “All potential investors should research any financial products fully and verify the company or individual you plan to do business with beforehand.”

    Read more here: Broward “boiler room” sold $2 million in fake precious metals; two arrested - Broward - MiamiHerald.com
    "It's virtually impossible to violate rules ... but it's impossible for a violation to go undetected, certainly not for a considerable period of time." Bernie Madoff
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  8. #8
    ribshaw's Avatar
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    Re: Boiler Rooms and Penny Stock

    BBC News - Boiler room scam three sentenced to jail in US

    Boiler room scam three sentenced to jail in US
    Emma Simpson By Emma Simpson Business correspondent, BBC News
    Richard Pope, Paul Gunter, Simon Odoni Richard Pope, Paul Gunter and Simon Odoni were found guilty of one of the UK's biggest scams


    Three British men have been sentenced to a total of 43 years in prison in the United States for their part in one of the UK's biggest investment frauds.

    Richard Pope, Simon Odoni and Paul Gunter conned British investors out of £80m.

    This was then funnelled off into US bank accounts for them to enjoy a lavish lifestyle.

    The men were the backbone of an international criminal crime gang which swindled at least 2,300 UK citizens.

    The City of London police believe it's the UK's biggest boiler room scam.
    Continue reading the main story
    “Start Quote

    I'm never going to get my life back - the life I had with my husband, my chances of a happy married life with my daughter - we were trying for another child at the time, those hopes have been destroyed”

    Andrea Goswami

    "These men are amongst the most arrogant, ruthless and destructive criminals the City of London police have ever dealt with and deserve every day they will spend behind bars," said Detective Inspector Kerrie Gower, who led the investigation.
    'Sheer greed'

    The men co-ordinated what police described as a network of Spanish boiler rooms, employing hundreds of people to cold call investors, using high pressure and misleading sales tactics to con them into buying worthless shares.

    Most of the victims were retired professionals whose losses ranged from a few hundred pounds to £1m.

    Andrea Goswami, from Yorkshire, still can't find the words to describe her loss. Her husband Mark committed suicide after losing around £200,000.

    "How could they be so arrogant to think they could get away with it, and have no conscience about it, and just to destroy people's lives in this way, just for money and just for sheer greed, and is it greed that's all that it's about - they say money's the root of all evil and they are evil for what they've done, " she said.

    "I'm never going to get my life back - the life I had with my husband, my chances of a happy married life with my daughter - we were trying for another child at the time, those hopes have been destroyed. Financially it's been devastating and it's a struggle, it will continue to be a struggle because of what they did."
    A private jet The fraudulent money funded a luxurious lifestyle - including this personal aeroplane

    Mark Goswami's money, and all the other stolen savings, were used to expand the criminal network and pay for the gang's extravagant purchases.
    Fake stock

    They included a £350,000 private jet, 26 properties and a number of luxury cars and speed boats.

    The sentencing marks a major milestone in a seven year transatlantic investigation involving an array of law enforcement agencies, from Spain to Florida.

    John Joyce, special agent in charge in Tampa, Florida, said the case was a great example of how law enforcement partnerships worked on an international scale.

    "The United States Attorney's Office, HSI [Homeland Security Investigations] and the US Secret Service worked this case with their law enforcement partners from London to investigate, prosecute and convict Mr Gunter, Mr Odoni and Mr Pope.

    "Their sentences should send a clear message to other fraudsters."

    The fraud began in 2004 when Pope, 55, Gunter, 64 and Odoni, 56 acquired the identity of several fraudulent US-based companies. Call centres based in Spain were then used to try to sell fake stock to unsuspecting investors.

    Websites and glossy brochures were used to give credibility to the gang's bogus investment opportunities.

    The enormity of the case first came to light in 2006 when the City of London police linked a number of inquiries in the UK to activities under investigation by federal agencies in the US.
    'Utterly destroyed'

    Widow Andrea Goswami: "To destroy people's lives in this way, just for money - it's just sheer greed."

    "The devastation and the impact that victims have suffered has been huge and it's had drastic consequences to individuals lives - marriages breaking down, selling of properties, individuals losing their businesses, having to work again when they were about to go in to retirement," said Detective Inspector Gower.

    "The enormity and scale of the devastation, I can't even say in words what has happened in relation to this case."

    Andrea Goswami travelled half way round the world to tell her story in a Tampa courtroom.

    "Going into the courtroom was the hardest thing I have ever had to do", she said.

    But Andrea was determined to get justice for her husband.

    She said he was utterly destroyed by the realisation he'd been conned and the shame of losing everything he had invested in. Andrea only discovered the true scale of the losses after he died.

    "He didn't want me to worry about it. My husband's a very proud man and he would never have told me the truth, he would have soldiered on. If he hadn't been so desperate at that time, if he'd only been able to talk to me about it - we could've got through it.

    "He must have been so desperate about the situation and obviously didn't know what to do for the best - he'd feel like he failed us. It wasn't his fault but he wouldn't have seen it that way because that's the sort of person he was - very loving, kind and caring and very intelligent and wanted to do the best."

    Richard Pope, originally from St Albans in Hertfordshire, was arrested in Spain and extradited to the US. He pleaded guilty in March 2011 of conspiracy to commit mail and wire fraud between 2004 and 2008.
    UK background

    In March 2013, the trials of Paul Gunter and Simon Odoni took place with Pope testifying against them. Both men were found guilty of three counts of conspiracy to commit mail fraud, wire fraud, as well as 19 counts of mail and wire fraud and 19 counts of money laundering.

    Pope and Gunter had originally worked together in insurance in the UK.

    Gunter had lived in London but later emigrated to the US.

    Odoni, also originally from St Albans, tried to avoid his bail in the UK by relocating to the Dominican Republic, living in one of the beachside properties purchased through the scam.

    He was later arrested in Florida while travelling through Miami Airport.

    Paul Gunter was sentenced to 25 years, Simon Odoni got 13 years and 4 months while Richard Pope received a far shorter sentence in return for his co-operation of 4 years and 9 months.

    All three men are spending years behind bars. But no sentence will be long enough for Andrea Goswami and her family.

    "They've got families of their own. Would they do that to their own families? It doesn't even bear thinking about what sort of a mind they must have. To me it's incomprehensible and it makes me so, so angry that when I see what they bought with all the victims money - they bought houses and boats and cars and property and left us with nothing. No amount of money can ever ever replace my husband."
    "It's virtually impossible to violate rules ... but it's impossible for a violation to go undetected, certainly not for a considerable period of time." Bernie Madoff
    https://www.facebook.com/pages/Scam-...98399986981403

  9. #9
    NikSam is offline AntiCon Artist
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    Re: Boiler Rooms and Penny Stock

    Netherlands's AFM published alerts on 7 more identified Boiler Rooms:

    Global Equity Group,
    MAV-Group Ltd.,
    Foerster Consulting Ltd.,
    Guozijian Capital,
    Sovereign Wealth Capital,
    Hudson Strategic Partners,
    World Capital Consultants


    URL: Actuele waarschuwingslijst boiler rooms | AFM

  10. #10
    Blackroach is offline Junior Member
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    Re: Boiler Rooms and Penny Stock

    Quote Originally Posted by NikSam View Post
    Netherlands's AFM published alerts on 7 more identified Boiler Rooms:

    Global Equity Group,
    MAV-Group Ltd.,
    Foerster Consulting Ltd.,
    Guozijian Capital,
    Sovereign Wealth Capital,
    Hudson Strategic Partners,
    World Capital Consultants


    URL: Actuele waarschuwingslijst boiler rooms | AFM
    Take a look at this website: Guozijian Capital...these clowns look more stupid than dangerous. Especially that old gimper on the main page.

    Also please add: World Venture Group to your list: World Venture Group These drips out from Newport Beach, owned by a guy named Geno Brunton. Pure scammer, he's swindled millions from innocent victims in 2012 alone. If you get a call from a Geno Brunton explaining that he will help your company raise money through some convertible bonds backed by insurance policies you can begin running in the other direction. He's duped many with this and absconded with millions.

  11. #11
    NikSam is offline AntiCon Artist
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    Re: Boiler Rooms and Penny Stock

    SEC Obtains Asset Freeze Against Promoter Behind Microcap Stock Scalping Scheme

    Quote Originally Posted by SEC
    The Securities and Exchange Commission today announced fraud charges and an emergency asset freeze against a promoter behind a platform of affiliated microcap stock promotion websites.

    The SEC alleges that John Babikian used AwesomePennyStocks.com and its related site PennyStocksUniverse.com, collectively “APS,” to commit a brand of securities fraud known as “scalping.” The APS websites disseminated e-mails to approximately 700,000 people shortly after 2:30 p.m. Eastern time on the afternoon of Feb. 23, 2012, and recommended the penny stock America West Resources Inc. (AWSRQ). What the e-mails failed to disclose among other things was that Babikian held more than 1.4 million shares of America West stock, which he had already positioned and intended to sell immediately through a Swiss bank. The APS emails immediately triggered massive increases in America West’s share price and trading volume, which Babikian exploited by unloading shares of America West’s stock over the remaining 90 minutes of the trading day for ill-gotten gains of more than $1.9 million.

    According to documents filed simultaneously with the SEC’s complaint in federal court in Manhattan, Babikian was actively attempting to liquidate his U.S. assets, which he holds in the names of alter ego front companies. He was seeking to wire the proceeds offshore. The Honorable Paul A. Crotty granted the SEC’s emergency request to preserve these assets by issuing an asset freeze order.

    “The Enforcement Division, including its Microcap Fraud Task Force, is intensely focused on the scourge of microcap fraud and is aggressively working to root out microcap fraudsters who make their living by preying on unwitting investors,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement.

    “By obtaining today’s emergency asset freeze, we have thwarted Babikian’s attempts to liquidate and expatriate assets that should be used to return his ill-gotten gains and pay appropriate penalties,” said Stephen L. Cohen, Associate Director of the SEC’s Division of Enforcement in Washington, D.C.

    According to the SEC’s complaint, America West’s stock was both low-priced and thinly traded prior to Babikian’s mass dissemination of the APS e-mails promoting it. America West’s trading volume in 2011 averaged approximately 15,400 shares per day. There was not a single trade in America West stock on Feb. 23, 2012, before the touting e-mails were sent. However, in the immediate aftermath of Babikian’s e-mail launch, more than 7.8 million shares of America West stock was traded in the next 90 minutes as America West’s share price hit an all-time high. Absent the fraudulent touts, Babikian could not have sold more than a few thousand shares at an extremely lower share price.

    The court’s order, among other things, freezes Babikian’s assets, temporarily restrains him from further similar misconduct, requires an accounting, prohibits document alteration or destruction, and expedites discovery. Pursuant to the order, the SEC has taken immediate action to freeze Babikian’s U.S. assets, which include the proceeds of the sale of a fractional interest in an airplane that Babikian had been attempting to have wired to an offshore bank, two homes in the Los Angeles area, and agricultural property in Oregon.

    The SEC’s investigation, which is continuing, has been led by Andrew R. McFall, John P. Lucas, Robert W. Nesbitt and supervised by J. Lee Buck II. The case will be litigated by Matthew P. Cohen and Michael J. Roessner. The SEC appreciates the assistance of the Quebec Autorité des Marchés Financiers, Financial Industry Regulatory Authority, and OTC Markets Group Inc.
    URL: SEC.gov | SEC Obtains Asset Freeze Against Promoter Behind Microcap Stock Scalping Scheme

  12. #12
    NikSam is offline AntiCon Artist
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    Re: Boiler Rooms and Penny Stock

    A boiler room was busted in British Colombia (Canada)

    BCSC panel finds that five B.C. residents engaged in market manipulation

  13. #13
    Blue Wolf's Avatar
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    Re: Boiler Rooms and Penny Stock

    Quote Originally Posted by ribshaw View Post

    The audio version of the Wolf of Wall Street was not too bad for what it was, much like Boiler Room in delving in to the excess and trickery of the lifestyle.
    Speaking of The Wolf of Wall Street . . .

    FBI raids medical supply firm with Wall St. 'Wolf' tie

    FBI raids medical supply firm with Wall St. 'Wolf' tie

    FBI agents and other investigators spent hours Wednesday apparently collecting evidence at a South Florida medical supply firm with links to "The Wolf of Wall Street" film amid accusations of Medicare fraud.

    FBI spokesman Jim Marshall confirmed that the bureau was "conducting law enforcement activity" at the offices of Med-Care Diabetic and Medical Supply Inc. in Boca Raton. News media photos and video showed agents from the FBI and other agencies carting out boxes of files and other materials from the office.

    Court documents show that among Med-Care's executives is Daniel Porush, a model for the character played by Jonah Hill in the 2013 "Wolf" film depicting Wall Street greed and corruption. It was based on a book by Jordan Belfort, played by Leonardo DiCaprio, who was a former business partner of Porush in various telemarketing and investment operations. Both real-life men did prison time for fraud.

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