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News Release: 01-01
GRAY DAVIS, Governor
Date: 01/08/01
WILLIAM KENEFICK, Acting Commissioner
Department of Corporations Leads First Boiler Room Task Force Sweep
"Operation Tough Call" Comes Knocking with Warnings, Orders, Arrests
Los Angeles, January 8, 2001 — The Department of Corporations today announced the successful conclusion of the first sweep of Southern California telemarketing operations by "Operation Tough Call," a multi-agency task force set up to attack illegal and fraudulent telemarketing operations, usually referred to as "boiler rooms." This action was taken pursuant to a 1999 federal grant awarded to the Department of Corporations by the U.S. Department of Justice.
The targeted companies were offering stock, partnership interests and other investment opportunities in firms marketing electronic components, movie deals, auction websites, computer hardware and software, Internet products and services, auto accessories, medical devices, infomercials, travel services, e-commerce services and others. The offerings were seeking in excess of $200 million in investor funds.
From October to December of this year, teams of investigators from the Department of Corporations, Federal Bureau of Investigation (FBI), Federal Trade Commission (FTC), Commodity Futures Trading Commission (CFTC), San Diego Boiler Room Task Force, County of Orange Boiler Room Apprehension (COBRA) Task Force, postal inspectors and local law enforcement agencies fanned out throughout Los Angeles, Orange and San Diego counties issuing warning letters and serving subpoenas, orders and arrest warrants to active boiler room targets that the department has identified as potentially selling investments illegally and/or fraudulently.
The department cautioned that while many legitimate companies use telemarketing to sell their products or services, investors should be wary of investment products sold online or by strangers "cold calling" them. Since it is difficult to verify the value or validity of offerings made in that manner, many such offerings may be highly risky and subject to abuse. When the financial future of investors is at stake, they should deal with financial professionals with whom they have an established relationship of trust. Investors should investigate all offerings before investing. The Department of Corporations can offer useful information to investors on whether the financial professionals are registered or have any enforcement actions against them. Investors may click on these links for "Financial Safety Tips" and tips on how to "Investigate Before You Invest," from the department's website.
In the sweep, the task force issued 92 Desist and Refrain Orders to 20 entities and 30 individuals in California, Florida, Nevada and Utah for the illegal and/or fraudulent offer and sale of securities and/or for acting as an unlicensed broker-dealer. To date, the project has also filed two civil actions against six entities and five individuals, served four search warrants, arrested one person and indicted five others for violations that include securities fraud, grand theft, selling securities illegally and acting as a securities broker-dealer without a license.
The teams also issued 20 subpoenas for investor lists, offering materials, sales scripts, financial records, advertising and telephone records to 20 entities and 26 individuals and paid "Knock-and-Notice" visits to 74 companies warning them that they might be violating the state securities laws and seeking their voluntary cooperation in the investigations.
The department noted that this was just phase one of a two-year project that has the goal of attacking illegal and fraudulent telemarketing operations in Southern California with all of the administrative, civil and criminal remedies available to local and state law enforcement and regulatory agencies in the area. A grant from the Bureau of Justice Assistance of the U.S. Department of Justice has funded a command center, project coordinator, databases to track targets of investigations, and outreach efforts to educate investors about how boiler rooms target seniors and other communities and what steps they can take to become "fraud fighters" instead of fraud victims. In fact, many of the leads for the current sweep were obtained through the cooperation of fraud fighter volunteers across the country posing as potential investors.
Follow-up in the weeks and months ahead will include analyzing the documents seized in the raids and provided voluntarily, issuing additional subpoenas, search warrants and orders and bringing civil and criminal actions. The grant project is expected to provide a model for other parts of the country in which illegal telemarketing activity is a serious problem.
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.
Attached is a fact sheet in Adobe PDF format containing a list of the companies and individuals which were the subjects of the sweep and statistics on the non-public investigative actions.
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