Inside the Boiler Room

A lot of Australians are wiser but poorer today after the police shut down two boiler rooms in Bangkok recently. The Australians were the victims of a group of highly organized con men who have made millions of dollars selling bogus investments.

But, according to inside sources, the raids were cosmetic. There are dozens more boiler rooms out there continuing to do business. They have merely slowed down their activities until the heat dies down. And they have gone underground to avoid detection.

At least one of the scamming companies that escaped getting raided has got rid of all their foreigners and hired Thais. These Thais have studied overseas and have a Western accent. They also have a Westernized outlook on life: In other words, they will be almost as aggressive as the foreigners they are replacing. At least, that is the hope of the mastermind behind the company that is doing the training.

Other companies are looking for new tele-marketers to replace the ones they laid off after the raids.

WHO ARE THE MASTERMINDS?

There are all sorts of rumors about the people behind this scam. One company boss is reputed to be an ex-army officer with extensive mercenary experience in Africa. They say he is highly trained in the art of warfare, can kill with his bare hands, and he is utterly ruthless. One rumor even has it that he has made opponents 'disappear', never to be seen again.

We have already seen that the bosses who got arrested were unsavory characters with a long list of criminal activities behind them. There is no doubt that the leaders of the other companies who escaped getting raided are equally nasty characters.

HOW IT WORKS

If you have seen "The Boiler Room" movie, you already have an accurate idea of how the scam works. Boiler rooms offer investments in IPO's (Initial Pre-Offering shares) and "Limited risk options".

Before a company gets listed on the stock exchange it must satisfy a set of stringent requirements. As the process nears completion the company offers pre-IPO shares to a select group of people, usually the directors and others close to the firm.

The IPO shares are valued at a low base price. As soon as the company goes public, the value of the shares increases and it is possible for the lucky few who have IPO shares to make a considerable killing. IPO shares are every speculators dream.

The boiler rooms offer the gullible and the greedy an opportunity to buy IPO shares they would not normally have a chance to get.

Less popular with prospects, but just as lucrative for the boiler rooms, are "Limited Risk Option" investments. To get an option, the prospect puts down a 'deposit' on a commodity trade. The deposit entitles him to put on option on a trade at up to 10 times the cost of the deposit. If the cost of the commodity increases when the option comes due, the prospect makes money on the entire amount.

However, if the price drops during the option period, the prospect loses the deposit when the option expires, and he has to pay additional service fees into the bargain.

No matter which 'investment' the prospect opts for, the boiler room is the only one that actually makes money. The dice are loaded from the start.

STARTS WITH A PHONE CALL

It starts with a long distance phone call from a 'TQ', or Technical Qualifier, to pre-qualify the prospect. The TQ asks a list of set questions to find out if the prospect can afford to invest at least $3,000. If the prospect wants to know more, the TQ tells them a 'Trading Advisor' will call back to discuss the offering in more detail.

Inside the boiler room the Trading Advisor is called an Account Opener, or AO. He is often highly educated, knows the investment business well, and he sounds very plausible. He will lead the prospect through a series of phone calls to commit himself to send money and a signed contract. Once that arrives, the poor guy is hooked.

During the conversation, the AO will tell the prospect about the company that is offering the IPO. Often, it is a real company which has its own website. If the prospect sounds uncertain, the AO will play on his fear of missing out on an opportunity to make more money than he's ever dreamed about, and then suggest he visit the website. The AO then calls back and asks the prospect if he liked what he saw on the website, and the con goes on from there.

The idea is to build up dependence, trust and confidence. If the prospect starts to object the AO will point out that he is an expert in investments and the prospect should trust him.

"You go to a mechanic to get your car fixed and trust him implicitly. Trust me the same way to help you make money." the AO will say.

AO's shout and scream, cajole, speak softly whatever it takes to get the prospect feeling dumb and dependent.

Each AO has his own style to get people excited and say 'Yes'. If they are talking to a doctor, the AO will play on the doctor's ego. "You are a smart man. You wouldn't want to miss out on an opportunity like this and look a fool afterwards, would you?"

If the AO is talking to a tradesman he will play on his pride. "Don't you have the balls to take a risk and get rich?", he will scream. This goads the poor mark into defending his manhood, and of course he is hooked.

Some prospects ask why the AO is calling from Bangkok. The AO has a dozen answers for every question: Cheap offices Low salaries and overheads Good communications infrastructure, and so on.

If the prospect asks what is the minimum, the AO will shout, "There is no minimum, you idiot! But start out small with just $3,000 if you don't have the guts to make a big killing."

The AO will push the prospect at every opportunity to conclude the deal quickly. "I'll send you a contract as soon as you agree. Sign it and send the money back immediately before you miss out." he will urge.

If the prospect agrees to buy, the AO will tell him that an "independent entity" will call him back to check the deal. Then he will make an appointment for the call.

Once the call has been made and the client feels confident the deal is on the level, the AO calls back and starts arranging the money transfer.

He will offer the client the choice of sending the money direct to the AO's company in Bangkok, or the AO will set up an offshore bank account in Hong Kong which will "belong" to the client.

What he doesn't tell the client is that the account will be opened in the AO's company name and all the money will be under its control.

The majority of clients elected to send the money direct to the company in Bangkok without checking. Greed will indeed make people do stupid things.

Once the money is transferred, the prospect receives another call from a 'compliance officer' to confirm the deal. He tells the prospect that he is taping the conversation to ensure complete transparency. Not all boiler rooms go this far, but some of the more experienced ones do it to add an extra dimension of trust.

THE SCAM CONTINUES...AND ENDS

Once the prospect has become a client and sent the money, the boiler room continues to milk him until there is no more money left. They do this by handing him over to a 'Loader'. The AO will explain that he is handing the client over to his boss, who will help him increase his initial profits.

This is just another psychological boost to get the client to part with more money. He feels like he has 'moved up' and is now in the hands of a man who will soon make him extremely rich.

Loaders are experts at extracting money from their clients. They will use every trick they can think of, from fear to friendship to stroking the client's ego. Whatever works.

The loader starts by setting up a friendly relationship with the client. He refers to 'friends' he has on the NY Stock Exchange, or other big traders.

He will call the client in the middle of the night with exciting offers that have 'just come in from New York.' The loader will tell the client that he's not really supposed to do this, but he wants to help the client make more money. It's exciting and it works. The client continues to pour money into the account.

The Loader will even ask people posing as big investors to call the client and discuss his portfolio. In the process, they boost the client's confidence even more. The money continues to pour into the scammer's coffers.

Clients rarely check to see that the money is actually there and increasing. But if they do, they will get a statement from the bank showing exactly how much is in the account. If they have set up an off-shore account with the bank in Hong Kong they can even use an ATM card to withdraw money from it.

During the sales pitch, the AO uses this to lure people in as well. He will tell them that the money is completely tax free and he can buy expensive presents for his wife or girl friend to impress them. These guys don't miss a trick.

Once the Loader has milked the client dry and there is no more money available, it is time to say good-bye or time to 'put the client to bed', as they say in the business.

This is when the client's money finally disappears from the bank account. The loader rings him up to say that the IPO company failed to get listed, or that it has gone broke and all the money invested in it has gone. The investor is left holding a phone, and not much else.

WHY AUSTRALIA?

Why did the boiler rooms target Australians? One inside source cited 4 good reasons:

• Because of the recession there the Australian dollar is weak and off-shore investments look like a good deal.
• Australians generally are not sophisticated investors, and many of them are very gullible when confronted by a smooth talking con man.
• Gambling is widespread in Australia and most of the people lured into the scam were already used to 'investing' money in 'sure things'.
• Australian regulations covering sending money out of the country are very easygoing. There is no limit and this made it easy for the investors to send money out.

Perhaps even more importantly, Australians speak English, and many have substantial savings salted away perfect conditions for a prowling shark.

THE AFTERMATH

Many investors, on hearing that their money had 'disappeared', went to the Australian Securities Exchange Commission and filed complaints. As the number of complaints increased these were passed on to the Australian embassy in Bangkok. Pressure from the Australians and the FBI was put on the Thai police to act.

They raided two companies and made a big fuss. There were pictures of the ringleaders being led out in hand cuffs, and the newpapers and TV had a field day. The police looked good as they charged the ringleaders with fraud and unlicensed trading.

The foreigners working for them escaped with charges of overstaying visas, or working without a work permit. Many of them were deported. Any who return to work are now being asked to sign a release form absolving the company from all responsibility for immigration or work permit violations. Most have opted out and gone looking for work elsewhere.

As for the arrested bosses, they soon found out that all the people they had paid bribes to couldn't or wouldn't help them. Suddenly, they were left to fend for themselves.

During the good times, some bosses gave money to charity and they were frequently photographed rubbing shoulders with high society people. Even this didn't protect them when the axe fell. The hi-so's couldn't distance themselves fast enough from their former 'friends'.

As a result, the scammers that escaped being raided have learned their lesson well. They no longer rely on bribes to protect them. Some have moved offshore to other countries, including Indonesia, the Philippines, and even further afield to the Caribbean or the middle of the Atlantic ocean.

Those who have stayed behind are working feverishly to reinvent themselves and hide their boiler room locations. In future, it will be virtually impossible to trace where the calls are being made. The raids have just driven the crooks underground and increased their security precautions. The scam continues.

The only way to avoid being snared by them is to hang up the phone immediately someone offers you a deal that is 'too good to be true'. You can bet your last dollar that it will be.

© Marc Holt. All rights reserved by the author.