Focus on fraud: Boiler room operations

May 18, 2011 Since 2007, a specialized OSC Enforcement team has been dedicated to shutting down Ontario-based “boiler room” operations. A boiler room involves unregistered salespeople illegally selling securities to investors, often fraudulently.

Here’s how the scheme works. Targets are randomly selected from phone directories or contact lists bought from other fraud artists. A team of salespeople cold call or e-mail the targets, using high-pressure sales tactics to sell questionable investments. They may lie about high returns or make false or misleading claims about the investment in order to get the sale. What they may not tell the investor is how risky the investment is or that it may not be appropriate for them. In some cases, the investment may not exist at all.

Boiler rooms are often highly organized operations run by professional fraud artists. They are usually set up in inexpensive office spaces that can be easily moved or quickly abandoned. By the time investors realize they’ve been taken, chances are the boiler room will be gone. Investors will likely never see their money again.

“Investors should be very cautious about buying investments from cold callers or through unsolicited e-mails,” says Greg Gard, Manager, Enforcement. “Before sending money, investors are strongly encouraged to check online or contact the OSC to find out if the individual and firm they are dealing with are properly registered to sell securities.”

Detecting and disrupting boiler rooms
Boiler room operations can be far reaching—Ontario-based schemes have targeted investors across Canada, the United States, the United Kingdom and elsewhere in the world. The OSC’s specialized team of investigators, accountants and litigators works closely with other securities regulators and law enforcement agencies to shut down boiler rooms and prevent further harm to investors.

Investigations often start with a tip from the public. The team conducts surveillance, gathers documents and other evidence, and conducts interviews to identify the sites of boiler room operations and the individuals involved.

The team has a number of tools they can use to disrupt suspected illegal activity and protect investors from ongoing harm while an investigation is underway. For example, they can ask the court for a warrant to search alleged boiler room locations for evidence. With the assistance of police, they execute search warrants, seizing computers, telephones, contact lists and other evidence.

Other tools include temporary cease trade orders, which can be used to prohibit individuals and companies suspected of illegal activity from trading in securities. The team can also ask the Commission for a freeze order to prevent bank accounts and other assets linked to suspected illegal activity from being liquidated or transferred out of Ontario.

Alerting investors
The OSC issues Investor Alerts to warn investors about potentially harmful activity in progress. Investor Alerts are sent to the media and are posted on the OSC website and Twitter to reach investors who may be affected.

The OSC also maintains an online Warning List of individuals and companies that appear to be engaging in unregistered activities that may pose a risk to investors. The CSA Disciplined Persons List includes individuals who have been sanctioned by the OSC, other regulators and government agencies.

If you are suspicious about an investment opportunity
Report it to the Ontario Securities Commission. If you prefer to remain anonymous, complete our online Complaint, Tip & Inquiry form.

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