Analysis: How to handle the heat of boiler room fraud

The boiler rooms date back to the 1930s, when some frustrated Canadians pondered what they should do with their lives after prohibition had stopped. Burgeoning securities laws, such as the Securities Exchange Act of 1934, led to fraudsters setting up the sale of bogus securities outside of legislation. This fraud is said to have been passed through a number of generations and causes some to conclude the Canadians are the best in the world at operating boiler room schemes.

In the 1990s as a detective I investigated a number of these boiler room frauds, which were executed by Canadians and supported by lawyers, accountants, and bankers in London. When I read the OCCRP article, I was struck by how little had changed. The fact is boiler room frauds succeed because, outside of the United States most of the time, law enforcement fails to even investigate, let alone prosecute, these cases. The major difference nowadays is the approach and first communication fraudsters have with potential victims.

In the 1990s, the fraudsters purchased mailing lists from companies and used letters and promotional brochures physically mailed to potential victims. I went to New York and secured a statement of evidence from the mailing list company who stated the customer—the fraudster—had requested a list of retired people living all over the world, save for the United States and Canada. It was apparent the fraudsters didn’t want to defraud their neighbors or upset the authorities in the country they lived in.

In Canada, I secured an evidential statement from the Canadian Bank Note Company—the company that printed Canadian money. The fraudsters used this company to print expensive, high-quality (albeit worthless) share certificates. Armed with the fraudsters’ mailing list, my colleagues and I began to call people around the world, and in the event they had “invested,” we sought to advise they were the victims of a fraud.

Some were reluctant to accept this; others had suspected the same. There was a time when I believed I was calling people and in a bizarre way was inviting them to raise their right hand if they had perhaps been greedy or raise their left hand if they had been stupid. Thus, it was not an appealing proposal, and some victims rejected the fraud option, preferring to suffer their financial losses and retain their dignity.

Nowadays, fraudsters find their victims through social media advertisements and promotions. Once a victim is in communication with the fraudsters, set scripts are applied and they are constantly encouraged to invest more and/or pay fees. The victim lists are then sold to other fraudsters who contact the victims and, for a fee, promise to pursue claims and secure the return of their investments—alas the fee is yet another fraud.

Behind all these frauds are bank accounts, and many banks proactively monitor transactions to identify these boiler room/investment frauds. This is why fraudsters often ask the victims not to use the word “investment” within the payment transfer instructions.

So just how do we, the financial crime compliance professionals, stop these frauds? Well, first and foremost, advise your family what these frauds look like and how aggressive salespeople ask for confidentiality and expediency. Tell them that when an investment opportunity finds them, rather than they find the investment opportunity, it will not be their opportunity. In fact, they will become the fraudsters’ opportunity.

When we see one of these advertisements, screen your own databases and establish if your firm/bank unknowingly provides services to the fraudsters. Don’t let these aggressive fraudsters intimidate you or put you off your scent. If your gut instinct says something appears to be fraudulent, go with it. Scientists at Cambridge University proved some time ago gut instincts are commonly right.

When seeking to dissuade customers from making payments to fraudsters, ask them how this opportunity found them. Remember, people often believe what they want to believe, but online anyone can be anyone or anything at any time. Contact the regulators in the country where funds are being paid to; contact peers in the banks where funds are being paid to. In conclusion, when seeking to protect your customers from these fraudsters, think of your own family—mother, father, brother, auntie—and protect them.

Every little action we take can help to defeat the bad actors while simultaneously protecting the good people, businesses, and even public bodies that serve us.