'Boiler rooms' fuelled by greed

THE PHONE CALL usually comes out of the blue. Normally it is long distance. Professionals, business people and expatriates working in Asia can expect to receive one, fraud investigators and victims say. It usually follows what was a seemingly innocuous offer of impressive-looking research reports sent by e-mail or traditional post to arouse interest in a share offer or property deal. That initial telephone call will have been made by an operator working from a long list of prospective investors compiled from databases. It was long distance because secretaries usually switch them straight through. Then comes the clincher. On the line will be a well-spoken broker, most likely using a false name, offering a share or property deal which is seemingly too good to be true. The key, unspoken, word will be greed. That is how 'boiler room' scams, such as the alleged Mendes Prior syndicate unravelled by Taiwanese police, operate. Mendes Prior's alleged mastermind, Sheridan Leslie Cox, 49, has been held in detention since January last year when he was arrested in a Taipei hotel on fraud, money laundering and immigration charges. He is expected to face trial in the next few months. The South China Morning Post has contacted his lawyer in Taiwan seeking comment, but has received no response. The immigration charge alleges he used a British passport with a fictitious name to travel in and out of Taiwan 26 times. A statement from Taiwan prosecutors alleged more than 11,000 investors had paid over US$297 million (HK$2.3 billion) to Mendes Prior. They were allegedly hustled over the telephone into buying fake stocks or shares in European properties claimed to have been identified for redevelopment by multinational companies but sold to different investors over and over again. Cox is being pursued by investors from another alleged swindle in the early 1990s using a company called Grimaldi Hofmann et Cie which purported to deal in North American stocks. The group, known as the Circle of Grimaldi Hofmann Investors (COGHI), has hired an international investigations agency to locate assets associated with Cox. An investigator said at least 28 Hong Kong victims had been found, who are estimated to have paid US$2 million to Mendes Prior. Most heavily hit were Singapore and Malaysia, where investors are estimated to have paid out at least US$20 million, while Taiwan punters are estimated to have lost US$10 million. Some 'boiler room' operations in Asia have been closed down recently. In July last year, 81 foreigners and 19 Thais were arrested in offices in Bangkok. Officers from FBI in the United States and the Australian Federal Police joined Thai police in raids on the offices of Brinton Group and Benson Dupont Capital Management. In South Africa, authorities forced the closure of a telephone marketing centre linked with Mendes Prior which was allegedly calling potential investors. According to investigators, 'boiler room' salespeople are required to use written 'pitches' which are usually cleverly and carefully scripted. They usually operate from a small office, cooped up at a bank of phones and the pressure is intense - hence the 'boiler room' tag. Their products usually are fake or artificially inflated company stocks and properties which have been sold many times over but which the salesperson just happens to have some 'inside information' about. The Post has obtained copies of scripts allegedly used by Mendes Prior sales staff. The first calls are made by newly recruited staff who are known as 'openers' and are required to use scripts to convince 'subscribers' to purchase stocks. The scripts show they are required to address a potential victim politely by using their surname and an honorific when they first call. Often they will emphasise urgency. Openers usually do not speak to a client again after a purchase, according to an investigator familiar with the scams. Investors will often be contacted later by a broker known as a 'loader' who seeks to sell them more bogus shares or land. In one scripted scenario, the broker claims to know a company whose stock the victim purchased earlier is about to sign a large contract to boost its turnover and that large reputable banks have advanced millions of dollars. 'The financing is in place, but the contract is not signed yet, so my advice is don't buy it yet. However, we have a source within the company who is going to call me [the] moment the final decision is made with a yes or a no,' the script says. The scripts have directions such as 'reassure client' and 'create excitement'. Among the 'do's and don'ts' is a direction not to seek clients working for stock brokers, diplomatic missions or media. Scam operators established offices in countries where securities and financial laws were weak, law enforcement was weak and corrupt, said the investigator. They also established outlets in third countries to hedge against disruption from law enforcement agencies and route calls to disguise their real location. 'When people get dollar signs in their eyes, that's it,' said Belgian detective Chief Inspector Marc Holsteyn, who conducted an earlier investigation into companies allegedly associated with Cox. 'Don't get too greedy,' was his advice for potential investors offered an apparently good deal. He said investors who lost money to the syndicate known as Grimaldi Hofmann, with which Cox has also been linked, had been falsely told the group had patronage of the royal Grimaldi family of Monaco. A Hong Kong businessman who spent nearly US$10,000 on shares from Mendes Prior brokers said he had never received certificates for the stocks. Whenever he called to inquire about them, brokers told him somebody would respond, but he never received a return call or the official paperwork. 'I get calls even now, so many people are looking for money,' he said. It was usual practice for scam operators to hire personnel known as 'coolers' to calm down upset investors, said the investigator, and some were so experienced and credible they could even persuade victims to buy more stock. Phone lines have also been ringing hot as efforts to find Cox's assets have been increasing. COGHI chairman Goran Struwe said it had received information Cox was seeking to strike a deal to reimburse Taiwanese investors which involved a plea bargain. 'That solution would leave all [others] without compensation,' he said. The British Government sought to intervene with the Taiwanese Government over its lengthy detention of Cox, upsetting those who claim to have lost money to Grimaldi Hofmann. A Foreign Office spokesman in London said its representatives in Taipei had written to the Taiwanese Justice Ministry asking it to 'speed up the process'. Cox has been detained since his arrest 16 months ago by police who were directed to him by the COGHI group. The British Trade and Cultural Office wrote to authorities in November expressing concern about the length of the time Cox had been held in detention, the spokesman said. The Foreign Office in London has come under pressure from Labour MP Howard Stoate, who had been contacted by members of Cox's family. Rachel Mayer-Diamond, a member of the Circle of Grimaldi Hofmann Investors, said she had written to the Foreign Office and British Trade and Cultural Office in Taipei. Ms Mayer-Diamond said she had been worried Cox might have been receiving assistance from the British Government to facilitate 'his early release' without investigations by Taiwanese authorities being completed. Glenn Schloss is a staff writer for the Post's news desk glenn.schloss@scmp.com