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Study: Investor Fraud Going Global

July 12, 1990

WASHINGTON (AP) _ Con artists as well as capitalists see a potential jackpot in the globalization of investment opportunities, a House panel investigating telemarketing fraud was told Thursday.

Kansas Securities Commissioner M. Douglas Mays said that the international investment fraud problem in this country ″parallels the growth in legitimate international investment activity.″

Mays, who is also president-elect of a state-level securities regulators organization, testified about a report that found small U.S. investors have lost more than $1 billion in the last two years to con men.

Schemes described ranged from high interest bank accounts on Pacific Ocean islands to gold mines in South America.

The 100-page report by the North American Securities Administrators Association found that crooks who have been selling phony oil well stocks and other get-rich-quick schemes over the phone have now turned to bogus overseas investment programs.

Other witnesses included William McDonald, director of the enforcement division of the California Department of Corporations and Lawrence H. Fuchs, deputy comptroller of Florida’s Department of Banking and Finance.

Mays said the NASAA report identified two major centers of alleged fraud outside the United States: phony offshore banks on tiny islands in the Pacific and Caribbean, and high-pressure telephone marketing operations known as ″boiler rooms″ working out of Panama and Costa Rica.

In one case cited, three boiler rooms based in San Jose, Costa Rica, took Hawaiian investors for more than $200,000 in phony investments in precious metals stocks.

Officials in Iowa, Missouri and Alaska have issued cease and desist orders against a Georgia man who has been promising investors bank accounts that bear 9 percent to 21 percent interest at a financial institution on Saipan in the Northern Mariana Islands, the study said.

Another case cited was a St. Louis man serving eight years in prison for bilking investors out of millions of dollars nationwide in phony contracts for five ounce bars of South African platinum.

Missouri investigators found that the mine in question does not produce five ounce platinum bars and the self-styled business expert’s previous experience was installing mirror tiles and table tops.

″International investment scams are now the fastest-growing fraud problem with which securities agencies are dealing,″ said Mays.

The study is based on an analysis of 87 major enforcement actions and investigations by 40 state securities agencies in 1988 and 1989. It was prepared at the request of the consumer and monetary affairs subcommittee of the House Government Operations Committee.

The study recommended that Congress:

-Create a federal-state interagency working group on international financial fraud.

-Direct the federal Securities and Exchange Commission to work with state regulators to create a database for tracking international investment swindlers.

-Pass pending lesgislation that would give the SEC greater authority to crack down on various forms of securities fraud and exchange information with foreign regulatory agencies.

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