Task Force Zeroes In on Illegal Boiler Room Investment Outfits

Alarmed by increasing “boiler room” operations that illegally market investments and commodity schemes over the telephone, 10 local, state and federal law enforcement agencies on Tuesday officially unveiled a task force to coordinate their investigations and prosecutions.

The San Diego Boiler Room/Investment Fraud Task Force, formed in April but formally announced Tuesday, has identified more than 60 boiler room firms here. Authorities in the past month have shut down two operations suspected of being boiler rooms--Timpson & Associates in Encinitas and First International Metals Exchange in La Jolla.

The task force is patterned after a similar year-old group that coordinates investment fraud investigations in Los Angeles and Orange County, according to Bill McDonald, assistant commissioner with the state Department of Corporations, one of the participating agencies.

Authorities are exasperated with the growing boiler room problem because “injunctions and administrative orders don’t have an effect,” McDonald said.

“These guys are crooks and thieves, and the only thing they understand is jail,” he said. “They have no respect for their victims and the law, and the only place they belong is behind bars.”

Heading the task force will be Robert J. Sullivan, deputy district attorney; Steve Adler, assistant state attorney general, and Darwin Wisdom, FBI white collar fraud investigator. Also included are representatives from the U.S. attorney, the Commodity Futures Trading Commission (CFTC), the U.S. postal inspector, the San Diego city attorney and the San Diego Police and Sheriff’s departments.

The task force will coordinate information, investigations and prosecutions and will also enforce a new state law that requires all telemarketing firms to register with the state attorney general.

The law, which went into effect Jan. 1, also requires the firms to provide authorities with their sales scripts and names of their sales staff.

So far, about 360 firms in California have registered, according to McDonald, who estimated that “one-third to one-half of (them) are problem companies.”

Failure to register is a felony for the firm’s owners and a misdemeanor for sales representatives.

Most fraudulent boiler rooms claim they are “brokerage firms” and have “impressive-sounding names and prestigious business addresses in an effort to create the illusion of legitimacy,” task force officials said.

Few of the boiler rooms are registered with regulatory agencies, they added.

The firms offer virtually every type investment from precious metals to oil and gas leases to office supplies, according to Arthur Salzberg, CFTC western regional counsel.

As part of the coordinated effort, several San Diego County deputy district attorneys have been designated as special assistant U.S. attorneys, according to William Braniff, chief federal fraud prosecutor here.

Postal Service officials are participating because most boiler rooms “involve some sort of mail fraud,” said postal inspector Tom Taylor.

The San Diego group will work closely with the Los Angeles task force, according to Terree Bowers, an assistant U.S. attorney and coordinator of the Southern California Investment Fraud Task Force. “We have been keeping each other apprised of developments,” he said. “We just don’t want to drive (boiler room operators) to another location.”

Bowers estimated that there are hundreds of boiler rooms operating in Los Angeles and Orange counties.