Better enforcement takes some steam out of `boiler room' bilking. But shortage of sleuths, great gullibility, and craftiness are tough foes
This spring, a sting operation moved in and shut down three ``boiler room'' shops south of Los Angeles that were selling bogus oil and gas investments. One of the companies was pulling in as much as $8 million a month through its scam. Several weeks ago, another investigation shut down 52 related ``dirt pile'' gold swindles that it had been aggressively tracking under Operation Goldbrick. Some 25,000 people, mostly retirees, were duped into investing about $5,000 for 100-ton units of unprocessed dirt, which was supposed to contain at least 20 ounces of gold. They were promised a future return of twice the low price they were paying for the nonexistent gold.
Most of the alleged mine sites had ``less gold than does sea water,'' says James Meyer, president of the North American Securities Administrators Association (NASAA), the organization handling the sting.
Both crackdowns demanded tremendous cooperation and precise timing between a number of states. Like most such cases, they also took several years and a lot of manpower.
``It took us 2 years to investigate one case - that case consumed three attorneys and an investigator for over nine months,'' says Dennis O'Keefe, associate director of enforcement at the Commodity Futures Trading Commission (CFTC).
At a telecommunications-fraud forum sponsored by the National Consumers League here this month, telemarketers, consumer advocates, legal experts, and regulators outlined the progress they have made in their battle, and the overwhelming size and slipperiness of the problem.
They concluded by agreeing to join forces and take ``a single-minded, centralized'' approach to the issue, says Jane King, deputy director at the National Consumers League. She says the NCL is organizing an aggressive, high-profile education program.
Pamphlets warning consumers about fraud, or random reports about the subject after someone has already been hurt, are not enough, she says, and often go unnoticed.
``It's going to take a very wary citizenry that will be able to turn off these unsolicited telephone calls,'' Fowler West, CFTC commissioner, agrees.
Though the most frequently conned are elderly, many people taken in by some ``really far-fetched scams are sophisticated investors proud of their savvy,'' says Steven Jones, vice-president of law and policy at the Council of Better Business Bureaus.
Con artists prey on people's fears. When stocks, bonds, and futures were selling well, fraudulent firms were marketing those popular investments. After the market crash, scams went back to tangible investments like gold.
Both men and women become much more vulnerable to ``get-rich-quick'' schemes as they watch their health-care costs increase and their savings dwindle, says Lee Norrgard, senior program specialist on consumer affairs at the American Association of Retired Persons.
Studies of consumers over age 65 tend to show that without as much education as younger generations, they are not as sophisticated about investments, pricing, and deceptive and unfair business practices, and are less likely to seek out information on these things, says Mr. Norrgard. Yet with generally high levels of income and assets at their disposal, they are the most frequent targets.
``The older population also foresees that the phone is indispensable for accessing the marketplace - fewer own cars and are more frequently immobile,'' Norrgard says.
Though a consumer-complaint data bank, jointly run by the Federal Trade Commission and the National Association of Attorneys General, was set up 18 months ago to assist in gathering evidence to prosecute law violators, relatively few people will complain, and if they do, it is often too late.
``They get lulled into thinking the money's going to come down the road - by the time law enforcement people get on [the swindler's] case, they've gotten a couple of million dollars, and they've already gone,'' says Mr. Jones.
Adding more grease to an already slippery problem is current law, under which firms can only be prosecuted in their home state courts. ``State-line jumping,'' the practice of staying one step ahead of investigations by moving into another state, is extremely frustrating for prosecutors, because keep having to start over, says Christine Milliken, executive director of the National Association of Attorneys General. A lack of information sharing among concurrent or related state in vestigations has chained prosecutors to their local jurisdiction, and given swindlers the advantage.
Many scam outfits close up shop and move into another state when it gets too hot in their state. ``Maggot Mile,'' clusters of hundreds of boiler rooms, has moved from Miami to Fort Lauderdale, Fla., to California, Nevada, Utah, and Denver.
After Florida lawmakers put together an aggressive package of laws two years ago, its maggot-milers moved north and then west, says Mr. O'Keefe at the CFTC.
Now there are more than 250 boiler rooms south of Los Angeles, ripping off consumers, or ``mooches,'' at the rate of $1 billion to $5 billion a year, estimatesScott Stapf, director of investor education at NASAA.
Although the CFTC is allowed to share information with certain state officials in securities-fraud matters and enter federal court to prosecute a state securities violator, those pursuing general fraud, especially telecommunications, are subject to many more restrictions. In the last seven years, the size of the Federal Trade Commission's telemarketing fraud bureau has shrunk by 34 percent. Thus the need for a national policy, the National Consumers League says.
As Congress considers legislation (see related story) that would essentially give state attorneys general authority to go after telemarketing fraud nationally, and would allow private victims to bring suit in federal court as well, states are also tightening rules.
For two years now, Florida, Utah, and California have made it a felony to simply pitch a fraudulent offer over the telephone to a prospective customer, even if no sale is made. A number of other states are considering this statute, says Mr. Stapf.
Eight states have adopted, and 14 more are considering, an NASAA ``model commodity code.'' The code grants a state the authority to prosecute unregistered off-exchange commodities frauds - for example, swindles involving synthetic gems, overvalued coins, and precious metals.