Managing Your Cash Flow
History of boiler room scams dominated by British fraudsters and investors
9 min read
24 July 2015
A UK specialist anti-fraud team has recently uncovered losses of £13m among 200,000 people whose names were found on so-called "sucker lists". Digging deeper, we found that British investors had been involved in quite a few large-scale boiler room plots.
The National Trading Standards Scams Team (NTSST) said a crackdown on scammers over the past three years had uncovered 13 lists filled with potential victims. These lists are sold for thousands of pounds between scammers. So far 10,843 people on the database are known to have handed over money on false promises. On average, they have lost £1,184 each, and nearly £13m in total.
The concept of the “suckers list” is based on the premise that when you’re scammed, you become susceptible to being scammed again. Doug Shadel, an expert on fraud schemes, said he was initially surprised to learn that con artists preferred to focus on investors who had already fallen for scams because he expected victims to be on guard. “Why would you want to call somebody who just lost $10,000 to an oil and gas scam?” he asked.
After interviewing several con artists, however, Shadel learned that criminals thought victims who had lost $10,000 in an energy scam passed the test of being willing to write a check to a stranger over the phone. “Con men told me the first thing they do is let the person rant and rave about their losses, and they write down everything the person says,” Shadel said. “They’re casing the mind of the victim by finding out what their hot buttons are.”
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In his 2012 book, “Outsmarting the Scam Artists”, Shadel told the story of a boiler room operator who hired a woman “to go to work for a competing boiler room” so that she could steal the competitor’s list. Notes on such lists include favourite sports teams, the targets profession and whether or not they have any illnesses. Criminals then pass those sheets around, enabling others in a boiler room to make a fresh pitch with some inside knowledge.
A “sucker list” can further be defined as background information being traded between boiler room operations, whereby scammers find out who would be more likely to fall for another scam. This statement was paraphrased from a leaflet produced by the US Federal Trade Commission in 1998 of all times.
It just comes to show that the “sucker list” is by no means a new invention. In fact, spanning from 1924 to now, Brits have been known to be either the master minds behind such plots, or the targets behind large-scale operations. It is thought to cost the UK around £200m a year. We took a look at five of the biggest boiler room scandals –synonymous with “sucker lists”.
1) Rum-running baronet
In January 1924, the Associated Press reported on the investment schemes of Broderick Hartwell, who was otherwise known as the “rum-running baronet”. The article claimed that Brits had invested more than $1.25m into his bankrupt enterprises. He exchanged their worthless stock for shares in other schemes to run the American prohibition blockade.
“Playing upon the willingness of inexperienced investors to send good money after bad, others anxious to take the money of the trustful have obtained Hartwell’s sucker lists and many of his creditors have been roped in on new whiskey-selling schemes in which it is planned to use island off the southern states as bases,” it said.
He raised the money for this operation by offering shares in his company to 100,000 and guaranteeing them a return of 20 per cent within 60 days. Hartwell received money from 10,000 people.
2) No1 Gems
In 2013, four UK gem dealers made £1m by duping investors into buying diamonds at inflated prices. Adam Simmons set up No1 Gems in 2011 and handed out brochures boasting that employees at No1 Gems had more than 100 years’ experience in the jewel business. They also lied about the closure of diamond mines and a potential £15m deal to sell jewels to HSBC.
The scheme involved buying diamonds and supplying them to customers with the promise they would make a substantial return. The fraudsters used a “sucker list” to source victims and cold call them into buying diamonds priced several times the actual worth.
All the gems had been purchased out of a mainstream diamond catalogue before the gang added mark-ups of up to 2,800 per cent. The fraudsters were eventually jailed and forced to pay back the cash they made. They were also banned from holding company directorships.
3) Operation Steamroller
Jeffrey Revell-Reade defrauded British investors out of more than £70m in what was called the biggest ever boiler room scam – codenamed “Operation Steamroller” by the SFO.
He masterminded a scam in which unlicensed brokers based in Madrid flogged “penny” or “cent” stocks that were worth nothing between 2003 and 2007. He convinced 1,000 investors to buy shares in companies that did not exist from his headquarters in Madrid.
Investors would buy shares that had restrictions on their resale for a 12 month period. When they came to sell the shares after the expiry of this period, they found that they were unable to do so as they were worthless. The profits were used to fund lavish lifestyles featuring numerous overseas properties, wine collections, luxury yachts and private jet hire.
4) The Wolf of Wall Street
According to Ronald Rubin, the dialogue in the movie “The Wolf of Wall Street” may have been fake, but the boiler room scam certainly wasn’t. He was the Securities and Exchange Commission enforcement attorney assigned to put together the case against Steve Madden – who was ratted out in 2000 by Jordan Belfort to reduce his jail sentence.
While compiling a case against Madden, Belfort walked Rubin through the way he himself had committed fraud. He said: “Suckers aren’t born, they’re trained.”
Rubin explained that Stratton Oakmont’s salesmen would first gain the confidence of investors by letting them make a small profit on a Stratton IPO. Once trust had been established, the salesmen would inform these customers that a really hot IPO was coming soon with a $4 issue price. “An excited customer with $100,000 of savings might authorise the Stratton salesman to buy 25,000 shares of the IPO stock, and then transfer the $100,000 to his Stratton account,” Rubin said. “By totalling up all such commitments, Belfort knew exactly how much buying power Stratton’s customers had.”
5) Florida scam
Three British con men ran a boiler room scam out of Florida, which left several victims penniless. One victim lost more than £800,000, while another killed himself after he lost £250,000.
Meanwhile, Richard Pope, Paul Gunter and Simon Odoni blew nearly £100m on sports cars, private jets and island homes. When finally caught, Pope faced 20 years in a US prison for committing one of Britain’s biggest boiler room scams. His gang stole the identity and history of publicly trading companies before cold calling investors using “high pressure and misleading sales techniques”.
The stolen money was “funnelled off into US bank accounts, where it was reinvested by financiers and enjoyed by the gang leaders.”