Boiler Room Busted….Again!

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SEC Hits New York boiler room a second time

 The Securities and Exchange Commission (SEC) has charged Long Island, NY-based boiler room Elite Stock Research, First Choice Healthcare Solutions Inc. and four others for manipulating First Choice’s shares to generate more than $3.3 million in ill-gotten gains, and for kickbacks of more than $560,000 to First Choice CEO Christian Romandetti.

This is the second SEC suit against Elite Stock Research, which previously has been in the regulatory crosshairs for also defrauding elderly and unsophisticated investors. The SEC alleges that Romandetti and other defendants duped more than 100 victims in a scheme to inflate First Choice’s stock price from less than $1 per share to $3.40 per share. From 2013 until June 2016, the defendants used multiple accounts in an attempt to disguise their trading, engaged in manipulative trading practices and then hired Elite Stock Research, run by defendant Anthony Vassallo, to promote the stock to investors, some of whom invested retirement savings.

Are high-pressure sales tactics a red flag for fraud?

Maybe. Because as the adage holds, if it sounds too good to be true, it probably is. According to Carolyn Welshhans, associate director of the SEC’s Division of Enforcement, “Investors should be on the lookout for individuals employing methods like the ones we allege in our complaints, such as using unsolicited calls and high-pressure sales tactics.”

In a related action earlier this summer, The SEC brought charges against Elite Stock Research, another boiler room, and 13 individuals involving two Long Island-based cold calling scams that bilked more than one hundred victims of more $10 million through high-pressure sales tactics and lies about penny stocks.

What do you do when a “broker” threatens you?

Hang up. And call the authorities.

The SEC alleges that the orchestrators of the scheme used boiler room-style call centers to make hundreds of thousands of cold calls that included the use of threatening and deceitful sales techniques to pressure victims – many of whom were senior citizens – into purchasing penny stocks. As part of one such scam, a boiler room salesman allegedly claimed that the Walt Disney Company was buying into a purported media and internet company and that would cause the penny stock’s price to increase substantially. During these calls, victims allegedly were harassed and threatened by sales personnel.

When one victim complained about his losses, a sales representative allegedly said, “I am tired of hearing from you.  Do you have any rope at home?  If so, tie a knot and hang yourself or get a gun and blow your head off.”

According to the SEC’s complaint, in a typical phone call, telemarketers would direct victims to place trades and tell them how many shares to purchase and at what price.  With this information about the victims’ trades, the orchestrators and the boiler room sales personnel allegedly placed opposing sell orders to dump their own shares, realizing more than $14 million in illegal proceeds while the victims lost millions of dollars, including retirement savings.

SEC investigators learned of the alleged scheme from investor complaints and used technological tools and innovative investigative approaches to build evidence – within a matter of months from receiving the complaints – against the defendants who went to great lengths to evade detection.

In both cases, the U.S. Attorney’s Office for the Eastern District of New York announced parallel criminal charges.

In the second instance, the SEC’s complaint, filed in federal district court in Brooklyn, N.Y., charges all defendants with fraud and nine with market manipulation.  The SEC is seeking permanent injunctions, disgorgement with interest, civil penalties, penny stock bars, and an officer-and-director bar from one of the orchestrators of the scheme.  The complaint also names 27 individuals and entities that received proceeds from the fraud, as relief defendants.

Was noncompliance worth?

Committed bad apples don’t care about compliance. But what about you? Why risk fines, suspensions, and penalties when compliance is so much cheaper! That’s where Patrina comes in. We’ve built our business based on helping organizations stay on the “straight and narrow” efficiently and cost-effectively. So, let’s talk. Call 212-233-1155 to ask about Patrina’s cost-effective and comprehensive, 8-module compliance solution, and compliant data capture, file storage, records archiving, and designated third-party services specifically designed for the financial services community. Be smart. Be covered.

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