Boiler room scams on rise globally: regulator

By Martha Graybow

WASHINGTON (Reuters) - "Boiler rooms" that use high-pressure tactics to lure investors to buy stocks have become a worldwide problem, with operations identified in areas as far-flung as southeast Asia and Africa, a top global securities regulator said on Thursday.

But trying to close these operations, which commonly cold call potential investors and use fraudulent methods to push overpriced stocks, is a challenge because they can set up shop virtually anywhere and are hard to track, said Greg Tanzer, general secretary of the International Organization of Securities Commissions (IOSCO), an umbrella organization for the world's securities regulators.

"They are often fairly small operations," Tanzer told the Reuters Regulation Summit by telephone from Amsterdam. "They can be set up pretty quickly and taken down pretty quickly."

Boiler rooms, a term that refers to the kind of makeshift offices these operations often use as their base, have been a focus of U.S. authorities for years. They involve brokers who refuse to say anything negative about the stocks they push and make baseless predictions about how much the shares are likely to jump.

Tanzer said these operations are on the rise, in part because of global communications advances that allow scammers to contact people around the world with greater ease.

In the UK, the Financial Services Authority (FSA) said in November that two men were arrested in connection with its first ever criminal investigation into boiler-room activities.

One problem in monitoring the schemes, Tanzer said, is that the deceptive brokerages may hold themselves out as legitimate firms that are set up in one place but in fact are operating out of another locale. Southeast Asia and Africa are two regions where such activities have been identified, as well as in parts of Europe such as the UK and Spain, he said.

Tanzer, a former Australian securities regulator who took the head role at IOSCO in January, also told Reuters that combating insider trading remains a top priority for the group.

Several recent high-profile insider trading cases in the United States have global links, including a $24 million civil settlement announced by U.S. regulators this week with Hong Kong banker and former Dow Jones & Co board member David Li and three other people stemming from trades in the U.S. media company's stock ahead of a takeover bid by News Corp NWSa.N.

IOSCO, whose group promotes international cooperation among securities regulators, is pressing roughly half of its more than 100 member countries that have not yet signed a 2002 memorandum of understanding on sharing information, that can be used in enforcement actions, to do so.

Most countries in the larger financial markets, including the United States, the UK, France, Germany, Japan and Australia, have signed the memorandum, he said.

But in some countries that are not yet party to the pact, regulators are not able to obtain the type of documents sought through the agreement because of local laws on things such as confidentiality of brokerage records.

"Some countries haven't come forward partly because they don't have those powers," Tanzer said.

(For summit blog: summitnotebook.reuters.com/)

(Editing by Tim Dobbyn)