WHEN MOVIES BECOME A REALITY STATE REGULATORS CRACK DOWN ON REAL-LIFE BOILER ROOMS.
Is the new movie ``Boiler Room'' fact or fiction?
The movie, starring Ben Affleck and Giovani Ribisi, focuses on a fictional Long Island brokerage firm, where aggressive brokers cold-call customers and manipulate them into buying fraudulent investments. Buyers are charged large commissions, and once the price of a particular stock is driven high enough, insiders sell - making large profits for themselves but leaving investors with losses.
This scheme is known as the ``pump and dump.''
State regulators say the movie is a realistic view of fly-by-night brokerage firms, and they urge investors to take a lesson from Hollywood about the world of high-pressure telephone sales operators.
Now their battle against illegal boiler rooms is gaining steam.
``We will be going after telemarketers, based on intelligence from informants, victims and files left behind in vacated offices,'' said Bill McDonald, head of the California Department of Corporations enforcement unit.
The crackdown is called ``Operation: Tough Call,'' an 18-month regional campaign funded by a $125,000 federal grant.
The money will support a command center, with a permanent staff, where local, state and federal law enforcement and regulatory agencies will share resources and information to target these illegal operations, he said.
And this shadowy sector has found a home in the San Fernando Valley.
The number of victims scammed by boiler rooms operating out of the Valley has grown - what was home to a cottage industry just a few years ago is now the largest center of illegal telemarketing activity in Southern California, law enforcement officials say. McDonald estimates there are 300 active boiler rooms in Southern California and most have a local address.
``They used to all be in Orange County, then they moved to Beverly Hills and Century City before setting up shop in the San Fernando Valley,'' he said.
Regulators and law enforcement officials are taking on a huge business.
Experts in the field estimate boiler rooms can earn up to $1 million a day. Each year thousands of people, many of them senior citizens, lose an estimated $40 billion nationwide to telemarketers who sell them illegal investments, said McDonald.
Most operations focus on microcap stocks, low-priced shares in little- known companies traded on the Over-the-Counter Bulletin Board or in the ``Pink Sheets'' rather than on the New York Stock Exchange or Nasdaq stock markets.
The state Department of Corporations has been working with the American Association of Retired Persons and other groups to warn seniors and others who may become victims of telemarketing fraud, said Tamalon Littlefield, a spokeswoman with the AARP in Sacramento.
``Most people think they are safe from crime in their own homes. They're not,'' said Littlefield.
Many of the boiler rooms target seniors because they have money and are at home during the day, she said.
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, authorities have cracked down on microcap firms such as Stratton Oakmont, A.R. Baron and Duke & Co. These security firms specialized in microcap stocks sold into California from other states, he said.
While the large microcap boiler room operations have been shut down, the problem remains.
``Some boiler room crooks simply move across the street and set up smaller shops,'' said Bradley Skolnik, Indiana's Securities Commissioner and president of the Washington-based North American Securities Administrators Association. ``Others moved into 'off market' investment schemes like phony bank notes, foreign exchange trading programs or other scams,'' he said.
Since it's almost impossible to get your money back, authorities say it's better not to fall for these scams in the first place.
State officials say senior citizens and others can protect themselves if they are suspicious of unsolicited phones calls, especially ones that offer a high return on an investment with hardly any risk.
Investors with questions, or who want to file a complaint, can call the Department of Corporations at (213) 576-7615 or the National Association of Securities Dealers' hotline at (800) 289-9999. Senior citizens with questions can call AARP at (213) 380-1800.
Photo: (color) Giovanni Ribisi in a scene from New Line Cinema's "The Boiler Room."
Box: TALKING THE TALK
The phone rings, you answer and the yak (pitchman) makes his pitch. Here are some terms that are tossed around the boiler room in an attempt to separate you from your money.
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|Publication:||Daily News (Los Angeles, CA)|
|Date:||Mar 13, 2000|
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