100 Businesses Targeted in Boiler-Room Sting

More than 100 businesses have been targeted in a sweep of alleged telemarketing scams in Southern California, authorities said Monday. One person has been arrested and five indictments issued since October, they said.

As part of the multi-agency task force operation, warnings have been issued to 74 companies, most of them in Southern California, putting them on notice that they might be violating state securities law.

The sting, dubbed Operation Tough Call, is aimed at shutting down as many as 300 telemarketing “boiler rooms” believed to be operating in California. Authorities say most of them are concentrated in Los Angeles and Orange counties.

Often targeting the elderly, telemarketers will make a series of calls to potential targets, pitching investments or some other money-making scheme. Once a person is hooked, typically within three calls, a courier then visits the victim’s house to collect the money.

“The advice I would give to people is, if you can’t verify the product exists, don’t buy it over the phone,” said Bill McDonald, enforcement director for the California Department of Corporations. “If this is such a good deal, why are people cold-calling strangers and selling to them over the phone?”

The companies targeted in the sting announced Monday were offering stock, partnership interests and other investments in firms marketing everything from Web sites to electronic components to movie deals.

Investigators said they hope the 74 businesses that drew warnings will voluntarily comply with authorities and cease any questionable activities. If not, the task force will follow up with more drastic action. However, McDonald said, there are “not enough cops in the world to stop all of the illegal telemarketing.”

“We hope to take action against the companies we are investigating,” he said. “California is a major exporter of telemarketing fraud, particularly in the investment fraud area.

“The task force is attacking it in a variety of ways, from subpoenas to search warrants. We are trying to put a major dent in this problem, and this will serve as a model for the rest of the country,” McDonald said.

Other businesses have been served with subpoenas, and the operation so far has filed two lawsuits against six entities and five individuals. In addition to the one arrest, five people have been indicted for alleged securities violations, grand theft, selling securities illegally and acting as securities broker-dealers without a license.

McDonald said it is not known how much money may have been lost to the scams and said the chances of recovering any of that money is minimal.

Among the firms targeted was Telephonic Yellow Pages Inc. of Lakewood, which took in about $2.2 million before the state won a permanent injunction against it and its principals.