Sunday, February 27, 2000

Secrets of the boiler room
Losses in the six figures teach a small-business CEO from Bend about the pitfalls of a sharpie's pitch for stocks, whether by phone or e-mail

By JULIE TRIPP

Ben Tuma hasn't seen the movie "Boiler Room" yet, but he doesn't need to watch the celluloid version. He's lived it -- or at least half of it.

Tuma, a 45-year-old wholesaler of paint and body-shop supplies from Bend, didn't live the life of one of the fast-talking New York stock promoters in the film. In his own story, Tuma played the typical small-business CEO taken in by the sharpie's pitch; the one that lost a pile of money.

It started a couple of years ago when Tuma got a telephone solicitation -- a cold call -- from a chatty New York broker who said he could make Tuma some money.

At first, the broker pitched stocks Tuma knew about. He bought 100 shares of Fila, the sportswear manufacturer, for about $9,000. During the next two months, the stock did make some headway. Gradually, he bought shares of other familiar companies.

"Then he got me into a company I'd never heard of," Tuma said. "You'd look them up in The Oregonian, and they wouldn't be there.

"As we got to know each other over the phone, he would do more. He would do unauthorized trades in my account.

"Then the guy actually flew out here. We were talking one day on the phone, and he said, 'I'll be out there tomorrow,' and he was. He paid $1,700 for a ticket from New York to Bend, Oregon. They were getting hints I had money.

"After that, I invested some more, but I got suspicious. I was trying to figure how to get my money out."

On one deal, he was able to transfer one of his accounts, but that stock was worth just $300 by the time he got out.

His total losses on the stocks the New Yorker had "pumped and dumped" were well into six figures. That's one of the techniques, outlined in the accompanying list, by which brokers promote a stock and then sell their own shares when the price is high, leaving investors with shares that collapse.

Still, Tuma is one of the luckier victims of boiler room schemes, because he's getting at least some of his money back.

He and his attorney, Robert S. Banks Jr. of Portland, reached an out-of-court settlement with the boiler room firm for an undisclosed sum. They didn't name the firm, because further negotiations are pending.

Banks has other cases with big awards that aren't collectible because the brokerage has gone out of business.

Tuma has some hard-won advice for others he wishes he'd followed before succumbing to the siren song of the stock promoter.

"First," he says, "don't let them talk. Just hang up on them."

Tell solicitors and brokers to put you on their "do not call" list. If they call again, report them to the U.S. Securities and Exchange Commission (202-942-7040). To get on Oregon's new no-call list, call toll-free at 877-700-6622. The service costs $6.50 annually and can be used only for residential listings.

"Deal with people you know."

Tuma is back on track, investing with a Bend stockbroker he's known for 25 years.
Be especially leery, Banks says, of brokers who call from boiler room hotbed locales such as Long Island or Manhattan; Boca Raton, Fla.; and La Jolla or Newport Beach, Calif.

"Invest in companies that you know and that you can look up on the Nasdaq or New York
exchange."

Brokers who pump thinly traded, over-the-counter "Bulletin Board" or "pink sheet" stocks should raise your suspicions. They are probably making big money selling stock that their brokerage owns, at big commission rates. Their firm may have been involved in the company's initial public offering. Brokers in "Boiler Room" were making commissions as high as $2 a share, and principals in the firm could afford to pay that much because they were selling "house stock" for huge multiples of what they paid.

"Do the homework."

It shouldn't even get this far, but if you are sucked into buying shares over the phone from someone you don't know, do some independent research on the broker, his firm and the companies he recommends.

To that advice, we add a final word from law enforcement agencies concerned about the evolution of telephone boiler rooms to the Internet. That dubious leap in scam technology was evidenced last week in an e-mail stock-touting scheme in which a Gaston man is accused of participating. Authorities said the Oregon man and an East Coast broker conspired to tout the shares of little-known companies by blanketing the Web with unsolicited e-mail, known as "spam."

The U.S. attorney in the case, Mary Jo White of the Southern District of New York, said the scheme, "well known for decades to generations of boiler room cold callers, takes on a new dimension because of the ability online to reach thousands, if not millions, of investors with a single keystroke.

"But," she said, "whether people commit these crimes in cyberspace or in office space, we will identify them, we will find them, and we will prosecute them."

That's a ringing endorsement for going after the bad guys, but wouldn't you just as soon not have done business with them in the first place?

Take Tuma's advice: Hang up. Or click delete.