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News Release: 00-02

GRAY DAVIS, Governor
Date: 03/02/00

WILLIAM KENEFICK, Acting Commissioner

Art Imitates Life in New Movie "Boiler Room"

Department of Corporations Urges Investors to Educate Themselves; Become Fraud Fighters Instead of Fraud Victims

 

Sacramento, March 2, 2000 — The Department of Corporations joined other state securities regulators in urging investors to take a lesson from the latest offering from Hollywood about the seamy side of the investment marketplace. The new movie "Boiler Room" shines a spotlight on the type of high pressure telephone sales operations on Wall Street and around the country that have stolen hundreds of millions of dollars from investors by selling them illegal and fraudulent investments.

"Boiler Room, " released by New Line Cinema and starring Ben Affleck and Giovani Ribisi, focuses on the "boiler room boys" at a fictional Long Island fly-by-night brokerage firm, "J.T. Marlin," where hyper-aggressive brokers cold call customers and alternately charm, manipulate and bully their prey. As is typical in "microcap" stock fraud, buyers are charged huge commissions and, once the price of the "house stock" is driven high enough, insiders sell, making big profits for themselves but leaving investors with losses.

California regulators warn that boiler room operations aren't investment houses, they're criminal enterprises—they steal money by lying. Fortunately, this sort of criminal activity isn't the norm on Wall Street. The vast majority of stockbrokers are ethical professionals that work hard for their clients.

The Department of Corporations is working with AARP and other groups to warn and educate seniors and others who may be victims of telemarketing fraud. But, this movie will reach a younger audience just entering the investment marketplace and will help them sort the hype from the real thing when it comes to investments.

Last October, the Department of Corporations announced that it had received a federal grant to head up a multi-agency task force to attack telemarketing fraud in Southern California. The grant will support a "command center," with permanent staffing, where local, state and federal law enforcement and regulatory agencies will share resources and information to target illegal and fraudulent boiler room operations. The task force will focus on the sale of phony investments including high technology products, the Internet, oil and gas, precious metals and foreign currencies.

In recent years, state, industry and federal regulators have cracked down on notorious microcap stock brokerages such as Stratton Oakmont, A.R. Baron and Duke & Company. Brokers have been convicted and sentenced to prison. Last week, 21 brokers at the defunct Sterling Foster securities firm were indicted on federal charges. Nevertheless, the problem of boiler rooms remains serious, especially in the age of the Internet, infomercials and other mass marketing venues.

The Department suggests that, to protect themselves, investors should hang up on aggressive cold callers or use answering machines to screen their calls. The department also offers these tips:

  • Beware of anyone promising you a "once-in-a-lifetime" opportunity to "get in on the ground floor of the latest IPO" with "guaranteed" returns.
  • Demand information in writing.
  • Don’t be pressured into buying anything, especially an unknown "microcap" stock.
  • Report abusive cold callers of investment products or services to the Department of Corporations or the Securities and Exchange Commission. (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 obtain any available information about the investment, the company and the disciplinary history of the person or firm selling the securities.

Investors can determine whether investment offerings are registered, whether persons selling them are properly licensed or have a disciplinary history, or can 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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