300 million pounds that police estimate boiler rooms will steal from U.K. investors this year compared with 100 million pounds in 2007. They say cold- calling share sellers are finding it easier to lure victims as people look for quicker returns in the wake of the financial crisis.Spain is the friendliest locale for boiler rooms that target U.K. investors, investigators say. Its major cities are only a two-hour flight from London, and the country is home to 761,000 expatriate Britons, according to the U.K. Foreign Office, making it an ideal place to set up a stock-selling operation aimed at English speakers. About one-third of all known boiler rooms are located in Spain, according to data from the U.K. Financial Services Authority.
That’s why British tabloid newspapers refer to the 1,000- mile stretch of Mediterranean coastline -- which runs from Barcelona in the northeast to the resort of Marbella in the south -- as the “Costa del Crime.”
Spain’s beach communities gained notoriety as a safe haven for British criminals in the early 1980s, when convicted robber Ronnie Knight spent a decade there on the run. A century-old extradition agreement between the U.K. and Spain lapsed in 1978 amid tensions over the status of Gibraltar, the self-governing British territory that Spain claims as its own. While the agreement was re-established in 1985 just before Spain joined the European Community, the predecessor to the European Union, the country didn’t shake off its image as a gangster refuge.
“What do boiler rooms want?” asks Michael Levi, a professor of criminology at the University of Cardiff in Wales, who has written books on corporate crime. “They want a nice environment, and that means good telecoms and a local police and judiciary that aren’t too bothered about them. That has been true for Spain.”
Small investors aren’t the only victims of the con artists. ValiRx, which is listed on London’s Alternative Investment Market, says its legitimate business and good name have been damaged by the Damak scam. “Cases like this have a very negative impact,” says ValiRx Finance Director George Morris. He traces problems back to Pacific Continental Securities (U.K.) Ltd., a legal London- based brokerage that the FSA liquidated in 2008, after the regulator found that Pacific Continental had shared client information with boiler rooms. The gang that targeted Reay was behind several share scam operations, including Blackwell Advisory Group, run from one of Barcelona’s most exclusive neighborhoods. Blackwell’s office was on the first floor of an apartment block with ceramic mosaics and wrought-iron balconies along the city’s Gran Via de les Corts Catalanes, near boutiques for Gucci Group NV and Giorgio Armani SpA. The firm was run by Danish-born Henrik Botcher, now 37. Fraser Jenkins, a 28-year-old Welshman, assisted Botcher by supervising the Blackwell Web site, showcasing information and live share prices about the companies being flogged by its salesmen. “He’s been to university; he’s a bright lad, and polite,” says Martin Hall, detective constable at the City of London police, about Jenkins. “I’m sure you wouldn’t mind taking him home to meet your mum.” The portrait of the Blackwell operation conveyed by court documents, police investigations and witness accounts shows a competitive, male-dominated world reminiscent of a David Mamet play. A team of 15 young men, who had answered advertisements in London newspapers seeking “telesales terrorists,” made several hundred calls each day. None of the workers knew the surnames of their two bosses, according to witness statements gathered by police. Henrik and Fraser paid salaries in cash and billeted the cold-callers in an apartment above a shuttered hairdresser’s shop. Such communal living is typical of boiler room operations because it increases competition among employees. Callers pulled down 4,000 pounds a month plus commissions-operating in a cutthroat world where a Rolex watch would be dangled off a hook on the office wall as a sales incentive. At night, the boiler room boys enjoyed a culture of heavy drinking and drug use, according to witness statements. The men frequently could be spotted outside, smoking furiously to relieve stress, says Juan Carlos Miguel, a barman at the cafe next door to Blackwell’s offices. “Then, from one day to the next, they were gone.” Spain’s national stock market regulator, the Comision Nacional del Mercado de Valores, had jurisdiction over only licensed brokerage firms until 2007. By the time it was granted legal powers to go after share fraud, a culture of crime had taken root, says Maria Gracia Rubio, a Madrid-based securities lawyer at Baker & McKenzie. “The law takes some time to permeate through society,” Gracia Rubio says. A spokeswoman for the CNMV declined repeated requests to comment.
The Damak scam that stole Reay’s nest egg was masterminded by Claude Clifford Greaves, 52, a London-based tax adviser partial to wearing silk handkerchiefs in his suit pockets. Police say Greaves is a serial trickster responsible for at least 10 million pounds worth of fraud over five years. His financial web was spun from the U.K. and Spain to the Caribbean, Paraguay and Hong Kong. Greaves has traded in his bespoke clothes for the maroon sweater and green pants inmates are required to wear at a minimum-security prison on England’s southern coast, where he’s serving a sentence of five and a half years. He was found guilty by a London jury in March on charges of money laundering and selling financial products without authorization. Three other defendants were sentenced to a total of eight years and three months after pleading guilty to their part in the scheme that relieved the Reay family of its money. Boiler room criminals use technology and creativity to obscure their true locations. Overseas-based salesmen route calls through London dialing codes and direct investors to send checks to fancy addresses in the U.K. capital-where the companies maintain post office boxes. The men who make the calls are typically well-spoken: Police say recruitment is being stepped up on university campuses in England to attract students hungry for jobs. The callers often mesh two first names as a pseudonym, as Robert Samuel did. His real identity was never discovered.
British investors are particularly vulnerable to cold calls because names of shareholders in each publicly traded company must be listed in registers. Addresses and the number of shares they own are also included. Those registries make it easy for smooth-talking sales agents to broaden their base of victims, says Bob Wishart, a detective superintendent at the City of London Police who heads Operation Archway, a task force dedicated to shutting down boiler rooms.
“We had the Cambridge University professor, a member of the House of Lords -- we’ve had them all,” Wishart says. So-called suckers’ lists of investor telephone numbers are passed around boiler rooms, authorities say. Britain’s FSA last November wrote to warn 11,500 people that they were on a list obtained by regulatory counterparts in Canada. “Because we recognize that getting the funds back is so difficult, we focus our resources on trying to warn off members of the public from dealing with the share fraudsters in the first place,” says Jason Burt, an official at the U.K. regulator’s unauthorized business division. Before her first foray in the stock market, Reay had already dabbled, unsuccessfully, in other investments. She had lost money in land bank deals, where companies bundle undeveloped plots, organize development permission for the properties and flip them for a higher price. She believes those investments first put her name into play.
Reay became suspicious about the fate of her money around Christmas 2006, when she still hadn’t received ValiRx share certificates. She looked up Damak Group on an Internet search and found a police notice urging people to come forward if they believed they had been scammed. She was just one of thousands of victims targeted by various scams run by Greaves, who at the time was serving a three-year jail sentence in London at Her Majesty’s Prison, Wandsworth, for an unrelated 7.5 million pound fraud. He had been convicted of avoiding value-added tax payable on computer parts across the European Union in what’s known as a carousel fraud. By the end of 2006, Greaves was managing a network of about 30 people in three different countries while on day release from his first jail sentence. “Claude could talk and talk and talk,” says Hall, who led Operation Storm, the effort that brought down Damak. “He’s quite funny in a way. He’s nice enough to talk to. You wouldn’t want to invest your money with him but … .” Born in Grenada in 1957, Greaves grew up in Peckham, a gritty part of south London. By the time of his arrest in 2008, Greaves was living in London’s exclusive Mayfair district, a short walk from Buckingham Palace. He qualified as a tax adviser with the U.K. Chartered Institute of Taxation in 1980, records show, and set up an accounting firm soon after. He eventually established a Mayfair tax advisory business, ROK International Ltd., in March 2004. It’s one of at least 60 companies in which Greaves has been listed as a director, according to U.K. corporate records. ROK International was located in a whitewashed Bruton Street townhouse that faces The Square, a Michelin-starred restaurant, and is around the corner from the jewelry stores and boutiques of Bond Street. His son and daughter, Leigh and Phillipa, both in their 20s, managed ROK during their father’s first stay at Her Majesty’s pleasure.
Leigh Greaves, a technology support analyst, was never charged by police. His sister was found not guilty of conspiracy to defraud and of money laundering in the March trial that saw her father convicted. She’s still a tax adviser. Neither responded to e-mails seeking comment. Greaves, who’s appealing his conviction and sentence, declined to comment through his London-based lawyer, James Nicholls at Bark & Co.
Money from ROK’s accounts was funneled in 2004 to New Haven Trust Co., a Liechtenstein-based investment firm, police evidence shows. New Haven has its own colorful history. The firm’s director, Mario Staggl, helped set up accounts for billionaire Igor Olenicoff to evade U.S. tax liabilities. U.S. prosecutors separately indicted Staggl in court in Fort Lauderdale, Florida in April 2008 for allegedly helping wealthy Americans evade taxes. He has since been declared a fugitive. Staggl’s Vaduz, Liechtenstein-based lawyer, Andreas Schurti, declined to comment. Greaves’s clients have also attracted the attention of prosecutors. His first firm, Allen & Greaves Ltd., audited the accounts of two companies investigated in 2002 by the U.K. Serious Fraud Office. No charges were brought in the case, which centered on share-selling scams and pushing overpriced claret to wine investors. Rolston Allen, Greaves’s former partner at the firm, said in an e-mail that he considered himself a victim of Greaves and had cut off contact with him seven years ago. Damak falsely asserted that it held a stockbroker license from the St. Lucian regulator, investigators say. It bought blocks of shares-both publicly and in private, over-the-counter sales-in companies like ValiRx, which callers like Samuel would try to flog to Britons. Back in London, ROK handled Damak’s paperwork and shifted the money to an HSBC Holdings Plc bank account in Hong Kong. Share certificates, when they existed, were also mailed by ROK. Today, Botcher and Jenkins, the men who ran Blackwell, are serving prison sentences after pleading guilty in a London court in February to breaching two financial regulations and to money laundering. Botcher’s lawyer, John Milner at London-based Irwin Mitchell LLP, says his client is appealing the 45-month sentence and believed that Blackwell investors were high-net-worth individuals. Jenkins, who is appealing his 21-month sentence, was an administrator at a firm that fell afoul of the U.K. financial regulator, says his Manchester, England-based lawyer, Mike Brunskill at Pannone LLP. Botcher had been recruited to the Greaves operation by Roozbeh Yazdanian, a fourth defendant, who also pleaded guilty to regulatory offenses. Yazdanian, 38, is appealing his sentence and declined to comment through his law firm, Russell Jones & Walker. The downfall of Greaves’s empire can be traced partly to a deal made with Ulrik Debo, another Dane. Debo was the majority investor in London-based Pantera Oil and Gas Plc, which was drilling in the Chaco Basin in Paraguay. He wanted to pull his money out to reinvest but couldn’t find a buyer.
“Ulrik has this problem: He’s got a quarter of a million pounds’ worth of stock stuck in this company,” explains Hall of the City of London Police. “Henrik turns around and says, ‘We might be able to do something about that.’” Botcher brokered a meeting in May 2006 with Greaves, who said Damak Group would buy the stock.
Filings show that Pantera sold Debo’s 1,256,367 shares at 2.67 pence each to Damak in August 2006. Damak resold them to investors through Blackwell for 12 pence each. Blackwell’s salesmen promised that the company would soon list on London’s AIM. It never did. “I lost every penny I put into that company,” says Debo, who’s now the chief executive officer of London-based DeBondo Capital. He gave testimony in court and didn’t face any allegations of wrongdoing. He declined to comment further.
Pantera changed its name to Artemis Energy Plc in December 2007. The brand has been tainted through association with Damak, says Mahesh Patel, Artemis’s company secretary. “We’ve not been able to raise a dime,” he says. Operation Storm, which triggered the end of Greaves’s adventure, was sparked when a victim contacted police in November 2006 and complained about losing money on Pantera stock after investing through Blackwell Advisors. The investor passed the police Damak’s share invoices, which had ROK’s address printed on them. Officers raided the Bruton Street offices and froze ROK’s bank account. Hong Kong police then froze about 400,000 pounds in the HSBC account where cash had been routed.
As police closed in, Jenkins, the Blackwell Web guru, booked a day-return flight from Barcelona to the U.K. and tried to withdraw about 50,000 pounds from his account. The bank tipped off the police, who arrested him. The game was up. Such successful prosecutions are rare, because resources are stretched and responsibility for fighting boiler rooms is shared between the police and the FSA. London’s Operation Archway, set up two years ago, has fewer than 10 full-time police officers. The FSA can freeze assets believed to belong to boiler rooms and can prosecute only U.K.-based operations or individuals. “I found out that, overall, the FSA were useless, the police were understaffed and weren’t given enough resources,” says Nigel Evans, a lawmaker in Britain’s Conservative Party who argues that the police need more manpower. His party, which is ahead of the ruling Labour Party in most U.K. polls, has pledged to abolish the FSA if it wins the next election and hand regulatory power back to the Bank of England. Even if the authorities do succeed in taking down a boiler room, British jail sentences for company-related fraud tend to be just a fraction of penalties handed to their U.S. counterparts, whose terms increase in proportion to the size of thefts. “Criminals who defraud people of hundreds of millions of pounds and who ruin thousands of lives should face the threat of significant prison sentences,” says Margaret Cole, enforcement director for the FSA. “Prosecuting individuals for conducting unauthorized business, which carries a two-year maximum term, simply does not do justice to the offense and certainly not to the victims.” Back in Carlisle, Reay is still paying the price for her mistake. She’s on suckers’ lists being passed around illegal companies. “I’ve had 150 phone calls over three years -- sometimes it’s twice a week,” she says. “Someone could call me up now and offer me the best thing in the world and I wouldn’t believe them.” The police say there’s a simple way to fight boiler room fraud: When a stranger calls and starts talking about your investments, hang up the phone -- no matter how posh the caller sounds.
16:04
Posted in: 
