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News Release: 99-15

GRAY DAVIS, Governor
Date: 10/15/99

WILLIAM KENEFICK, Acting Commissioner

California Receives Federal Grant to Fight Telemarketing Fraud

 

Sacramento, October 15, 1999 — The Department of Corporations today announced that California has been awarded a grant from the Bureau of Justice Assistance of the U.S. Department of Justice to lead a multi-agency attack on illegal and fraudulent telemarketing operations. The grant is one of five projects nationwide to support innovative approaches to fight the ongoing problem of telemarketing fraud.

The grant will fund a "command center" with full-time staffing to allow a task force of local, state and federal law enforcement and regulatory personnel to:

  • Share information about the latest telemarketing scams,
  • Create data bases and link charts to track targets and determine trends and priorities,
  • Facilitate "reverse boiler rooms" in which AARP and other volunteers call potential victims whose names appear on "mooch lists" to warn them that they are being targeted, and
  • Organize raids and enforcement sweeps to bring actions against promoters, boiler room operators and telephone salespersons that use high-pressure sales techniques to rip off unsuspecting investors.

In response to technology, telemarketing is changing. The increased use of answering machines and voice mail and repeated crackdowns by regulators have been a major deterrent to the big boiler room operations. According to the Department of Corporations, they have been replaced by smaller "rip and tear" operations — telemarketers who work from home or from hotel rooms, using cell phones and temporary post office boxes to make it harder for regulators to trace and catch them.

That is why consumers need to be cautious when approached by aggressive telemarketers seeking new investors in fraudulent investment schemes. Embracing new technology, telemarketers are now going "multi-channel," using Websites, direct mail and infomercials to solicit potential customers and get victims to initially contact them. But the sale is usually "closed" over the phone. Telemarketing fraud specialists warn that with telephone capability and sophisticated 800 number technology, telemarketers can cross borders or go offshore to make investigation and prosecution more difficult. They can as easily be in Costa Rica as in Costa Mesa.

Telemarketing hotbeds include California, Florida, Canada and, increasingly, the Caribbean. In addition to California, federal grants to fight telemarketing fraud were also awarded to: Florida, Georgia, North Carolina, and Vermont.

In connection with the announcement of the grants, the Department of Corporations joined other states and the North American Securities Administrators Association (NASAA) in warning the public that despite the growth in Internet fraud, most bogus investment schemes are still sold the old-fashioned way — over the telephone.

State securities regulators are fighting telemarketing fraud in a variety of ways, including enforcement actions and education. Using the Department of Justice grant, the Department of Corporations will work with a task force of federal, state and local law enforcement agencies to crack down on sophisticated boiler room operations in Southern California. The task force will leverage local, state and federal resources to identify targets, share investigative information and bring coordinated raids and enforcement actions. It also will partner with the AARP to expand on the successful "reverse boiler room" concept that has worked well in educating and warning potential victims of telemarketing frauds in the past.

For more information on telemarketing fraud, visit the Department of Corporations Website at (www.corp.ca.gov) or the NASAA Website at (www.nasaa.org) and look under "Investor Education" for the "Cold Calling Alert."

Tips to follow if a cold caller gets you on the line:

  • Hang up on aggressive cold callers.
  • Beware of anyone promising you a "once-in-a-lifetime" opportunity of "guaranteed" returns.
  • Demand information in writing.
  • Don’t be pressured into buying anything, especially an unknown "microcap" stock.
  • Report abusive cold callers to the Department of Corporations. (Note the caller’s name, their firm’s name, the time and date of their calls, what they said to you and what you said in return.)
  • Before making any investment, call the Department of Corporations to check out the investment and the person or firm selling it.

Investors can determine whether offerings are registered and persons selling them are properly licensed or file a complaint by calling the Department’s Consumer Services Representative at (213) 576-7643.

The Department of Corporations is California's Investment and Financing Authority, reporting to the Business, Transportation and Housing Agency and the Governor. The Department is responsible for the regulation, enforcement and licensing of securities, franchises, off-exchange commodities, investment and financial services, independent escrows, consumer and commercial finance lending and residential mortgage lending. For further information or to obtain a complaint form, see the Department's Web site at www.corp.ca.gov.

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