For the first time, states have organized to go after con artists who work across state lines. Regulators have unveiled a powerful new weapon against interstate securities swindlers, and the new system works.
Until now, it has been difficult to bring to justice many of those who engage in securities frauds. The reason? They usually have operated in one state but have preyed, via telephone, on "investors" in other states. Authorities in the states where the victims live lacked the jurisdiction to go after the swindlers, and the authorities in the states where the crooks were operating were already too busy. Authorities didn't have a lot of resources to investigate outside complaints.
Enter the North American Securities Administrators Association (NASAA), made up of the securities regulators from the individual states and Canadian provinces. The regulators realized that through mutual assistance, the bad guys could be struck a terrible blow.
Which is exactly what happened.
Last year, with the Iraqi invasion of Kuwait, the NASAA warned investors that the con artists wouldn't be long in developing new frauds designed to capitalize on the crisis. Sure enough, within weeks people were receiving telephone calls from "investment advisers." And what an offer they had! Because of the situation in the Middle East, oil prices were going to shoot through the roof. Now was the time to invest in oil properties. Fortunately, the "adviser" just happened to have these shares in companies that were on top of sure profits in the oil business and, even more fortunately, they were available at bargain prices.
You probably can guess the rest of the story. The innocent and uninformed investors sent large amounts of money -- sometimes their life savings, totaling as much as $50 million, according to the NASAA -- to the swindlers. They received a "dividend" check or two. Then nothing more. When they made inquiries, they discovered that the "investment" company was nowhere to be found.
But this time, the interstate consortium of regulators was ready. They had formed MULES, for Multistate Law Enforcement Sweep. Now in its third year, MULES came into its own during the oil swindles.
When an undercover agent in New Hampshire received a sales pitch, it was now easy to hook up with enforcement agents in California, where the swindle originated. Con artists discovered that a state line no longer afforded much protection. When the smoke cleared, 32 "boiler rooms" had been raided, and it now appears that 30 swindlers will be lodged at government expense for the next few years.
But recovering the money was a different story. Most of the victims lost all their investment, save for the paltry checks they received, which were sent by the grifters to keep investors from getting nosy too soon.
That is why regulators and investigators continue to say that you are your own best line of defense against the confidence men and women who continue to rake in piles of ill-gotten gains.
These crooks wouldn't be successful, say the regulators, were it not for the greedy streak in most of us. The promise of immense profits is cleverly used to justify the need to act quickly. The crook will say that there's little time in which to make the investment. Prices are going up, or the opportunities to invest are limited. This, of course, makes it difficult to check out the company offering the deal.
Cooperation among states in tracking down and prosecuting investment swindlers is a healthy development. It's clear that this kind of joint action is a powerful tool in closing down interstate boiler room operations. But those investigators are the first to admit that punishing a swindler after the fact is a poor alternative to foiling him in the first place.