SEC Charges 13 Individuals Involved in $10 Million Boiler Room Scam

Telemarketing representatives allegedly verbally abused and threatened elderly investors.

The US Securities and Exchange Commission (SEC) announced it has pressed charges against 13 individuals who were allegedly involved in two cold calling scam operations based in New York. The total amount of stolen funds is estimated at $10 million.

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Scam operation tactics

The SEC has accused the group of running boiler room call centers, from which representatives made sales calls, including threats and dishonest sales techniques. In many of the calls the victims, most of whom were elderly, were pressured into buying penny stocks. One sales representative went so far as to argue that Disney’s purchase of an internet and media firm’s shares would cause the penny stock’s value to soar.

The sales representatives instructed traders to place trades on certain shares, following which the scammers would place their own opposing short trades. 

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Legal action

The American regulator opened an extensive investigation on the heels of complaints from clients. Stephanie Avakian, Co-Director of the SEC’s Enforcement Division, commented that such operations can end disastrously. “Investors must beware of the sort of conduct alleged in our complaint – things like unsolicited calls, high-pressure sales tactics, and promises that a no-name stock is going to skyrocket,” she said. 

The United States Attorney’s Office for the Eastern District of New York announced the criminal charges. The SEC complaint, filed with the federal district court in Brooklyn, charges all 13 of them with fraud, with nine of them further charged with market manipulation. Some of the defendants will also be charged for operating as unauthorized brokers.

The complaint further mentioned 27 individuals and entities that received proceeds from the operation.

The SEC is now requesting disgorgement with interest, civil penalties, permanent injunctions, penny stock bars, along with an officer-and-director bar for one of the scam’s orchestrators.

CFTC course of action

This week, the US Commodity Futures Trading Commission launched a new video series called “True Fraud Stories”, aimed at ensuring that traders will be alert to the imminent danger of scam operations. The first episode tells how Bob Bauman, a military veteran with an advanced business degree, fell victim to a scam involving silver.

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