Fraudster Face Criminal Charges Over ‘Boiler Room’
The Financial Services Authority (FSA) has secured a criminal conviction against a boiler room fraudster and an approved person, who were both fined and prohibited from assuming influential functions.
The UK financial watchdog has ruled a two-year imprisonment against David Roger Griffiths Mason for boiler room fraud and banned him from serving a director position for six years.
In a case heard at Southwark Crown Court, Mason pleaded guilty to 13 counts of conducting a regulated activity without authorization; one count of making false statements; and three counts of money laundering.
In a related regulatory action, the FSA has also fined David Sinclair, an FSA-approved person from Axiom Capital Limited, £68,000 and banned him from further holding any significant influence function.
In late 2008, Mason asked Sinclair to help set up an investment vehicle, EduVest. EduVest had no real function and appeared to have been used purely for the purposes of a share fraud.
“Sinclair unwittingly allowed Mason to use a bank account under his control to dissipate investor money to Mason and boiler room fraudsters,” the FSA said in a statement.
The FSA did not take regulatory action against Axiom. Sinclair, through Axiom, paid for the losses and interest of investors.
Meanwhile, Ontario Court judge Joseph Kenkel sentenced yesterday Abraham Grossman to three years imprisonment for his role in a “boiler room” fraud involving shares of Shallow Oil and Gas Inc.
Boiler room fraudsters usually try to dupe investors through telephone calls, pressing them on buying non-tradable, overpriced or even non-existent shares. These fraudsters usually come from abroad with fake UK addresses and phone lines routed abroad.
The FSA claimed that between November 2008 and May 2009, Mason planned the cold-calling and sale of shares in EduVest Plc. Consequently, a total of 32 people who were duped into believing that EduVest would be listing on the PLUS stock exchange in the near future invested £270,000.
EduVest never listed on the PLUS market, while no certificate was issued and investors’ money was never used for EduVest business.
Unauthorized overseas firms allegedly cold-called the victims and offered them shares in EduVest. These firms included Hunter Rowe Financial, Bernam and Shore, Attlee Wurth Consulting Group, Investor Relations Corp (also known as IRC), Rothman Capital and Bishop Capital.
The FSA went on to say that Mason also laundered the proceeds of the boiler room operation, as well as setting up EduVest and arranging the deals for the boiler rooms.
“Some funds were directed to the boiler rooms via accounts in Switzerland and the Seychelles as commission payments with the remainder sent to accounts controlled by Mason which he then kept,” the FSA claimed.
As part of the boiler room fraud, Mason arranged a letter to be sent from ‘David Branscombe’, a fictional employee at EduVest, to update investors on EduVest’s progress and give the impression of validity.
Tracey McDermott, acting director of enforcement and financial crime at the FSA, said: “Mason was at the heart of a sophisticated boiler room scam and without his involvement the deals could not have been completed and the proceeds laundered.
“Like all boiler room fraudsters, Mason was dishonest and posed a very serious threat to honest investors.”
The investigation by the FSA and City of London Police into Mason’s boiler room fraud started on November 2009.
Tracey McDermott added: “Authorised firms, their employees and persons holding significant influence functions, are in the front line when it comes to combating financial crime. They must be vigilant for warning signs that their clients might be involved in illegal activities.
“Sinclair failed to exercise the due skill, care and diligence required of an individual holding a significant influence function so must shoulder some of the blame for investors’ money being paid to boiler rooms. This substantial fine and the SIF prohibition reflect the seriousness of his failings.
“While we recognise this was not a deliberate breach on Sinclair’s part, the sanctions imposed highlight just how important it is for individuals to make the appropriate checks when doing business with others.”
The presiding Judge, HHJ Rivlin QC said: “I am satisfied that without your involvement this scheme could never have operated… I do believe the arrangements made by you were sophisticated… You caused distress, worry, frustration and in some cases serious disruption… You acted with blatant and I would say ruthless dishonesty which was thoroughly reprehensible.”
The FSA said that in February 2010 it had recovered £270,000 as a result of action taken against companies involved in boiler room activity.
The FSA estimates the cost of boiler room fraud in the UK to be £200 million per year.
The FSA receives around 3,500 calls a year from people who have been contacted by boiler rooms. Around 1,000 of these are victims of boiler rooms and they lose about £20000 each. This produces a loss of £20 million that the FSA hears about, but it is estimated only 10 percent of victims report the crime.