Communication and co-operation between Ontario and British Columbia securities regulators and their counterparts in Britain have led to unusual success in a recent stock swindle that crossed various jurisdictions.

About 160 people in Britain who bought fraudulent mining shares are getting back 90% of the $2.5 million they collectively lost after being fleeced by boiler-room operators based in Europe.

The investors thought they were getting a piece a gold-mining property in B.C. being developed by two related North American companies, Rocky Mountain Gold Mining Corp. and Rocky Mountain Gold Mining Inc. But, thanks to an anonymous tip, staff with the Ontario Securities Commission and the B.C. Securities Commission, as well as Britain’s Financial Services Authority, were able to get involved in time to freeze investor funds while they were being held in a Toronto bank account.

“Because the scheme was international, co-operation had to be international,” says Lang Evans, director of enforcement for the BCSC in Vancouver. “If any of the three agencies involved had not acted quickly, we would not have achieved the same favourable result. As a regulator, it was quite a remarkable experience, as we often arrive too late and the money is gone. This was a successful exercise.”

Hugh Craig, litigation counsel for the enforcement branch at the OSC in Toronto, says one of the tricks of boiler-room operators is to dodge the scrutiny of regulators by conducting various parts of their operations in different parts of the world. In this case, shares in a B.C. mining property were sold by European boiler-room operators to investors in Britain. The funds raised were ultimately transferred to a bank in Toronto in the name of an “escrow agent” for the companies.

“The recovery of the funds was a collaborative effort among regulators,” Craig says. “The money happened to land in Toronto, which was the final act in the furtherance of a trade, so it was within our jurisdiction.”

Although the mining property and a company called Rocky Mountain Gold actually did exist at the time of the scam, no Rocky Mountain shares were registered for sale by any legal prospectus. And there were no legitimate publicly traded shares outstanding. The company name had actually been “hijacked” by the fraudulent promoters. The people selling the shares were not legally qualified as securities salespeople working for a registered dealer.

“Some of these bad guys think they can avoid scrutiny by fragmenting their operations across various jurisdictions, making it more difficult for the regulators to catch up with them,” Craig says. “In this case, regulators worked together to get the money back to the victims. It’s a ‘good news’ story. But communication among regulators in different jurisdictions is not unusual; every day, we’re on the phone with other regulators and we co-operate on a variety of matters.”

Boiler rooms, a.k.a. bucket shops, operate illegally by promoting and selling shares that may be overpriced, restricted in terms of future sale or have little or no value. Boiler rooms tend to spring up quickly and then vanish, leaving the investors out of pocket and with nowhere to turn for compensation.

Often, these illegal operations have simply picked up their phone banks and moved across the street, Craig says. In his investigations, he frequently comes across the same names of people behind the boiler-room operations. “Sadly,” he says, “we see some of the victim’s names reappear in more than one of these unfortunate scams.

“It’s not uncommon for boiler rooms to be flogging shares in mining, oil and gas or medical-technology companies,” Craig adds. “There is always a potential discovery, and the promoters offer the promise of large returns and the chance to get in early. Investors of all ages and income levels are targeted. There is no common thread.”

In the case of the Rocky Mountain Gold Mines scam, the amounts invested ranged from a few thousand dollars to more than $150,000 a person.

The FSA has tried to contact all relevant investors targeted by the boiler rooms selling fake Rocky Mountain shares. A few may not be aware that they could be entitled to a refund. Of the 166 investors involved, 153 have received their money back.

“If you’re selling shares in British territory, you must operate within British securities laws, and that’s where the rubber hits the road,” Craig says. “The regulators’ job is to protect citizens from the illegal distribution of securities. They don’t like it when money is taken from their citizens for worthless shares.”

@page_break@In a related investment fraud case involving victims in Britain and international co-operation among several regulatory bodies, a father and daughter team were arrested in Florida in mid-March, following a joint investigation by the U.S. Attorney’s Office in the Middle District of Florida, the U.S. Secret Service and the London Police Department.

According to a release issued by the U.S. Immigration and Customs Enforcement agency, Paul Gunter, 58, and Zibiah Gunter, 25, were allegedly involved in activities that include hijacking the identities of dormant publicly traded companies, fraudulently causing the issue of shares in these companies, selling virtually worthless stock to Britain-based “victim-investors” through high-pressure and misleading sales techniques, and causing these people to wire investment funds to bank accounts in Florida and elsewhere. The pair was charged with multiple counts of committing mail fraud, wire fraud and securities fraud, as well as money laundering.

The investigation has revealed that the conspirators used about 54 publicly traded shell companies and that victim-investors in Britain wired in excess of US$70 million to the conspirators, the release says.

The criminal complaint documents filed in U.S. District Court allege that B.C.-based Rocky Mountain Gold was one of the companies “highjacked” by Gunter and others who were selling fictitious shares and that Paul Gunter was the president of North American Escrow Services, the same company that had been handling the funds that had been frozen in a Toronto bank and ultimately returned to British investors.

The document also says that when than Rocky Mountain Gold’s president, Ryan Gibson, was contacted by regulators seeking to verify the legitimacy of the company, he told them Rocky Mountain Gold was not selling any shares to the public.

Evans stresses that enforcement is only part of the solution in shutting down fraudulent operators. Regulators also require the assistance of the public. The more the public can assist in tracking down illegal activity, the more quickly and effectively regulators can act upon it, he says.

“Investors need to be skeptical when they receive cold calls; and they should do their due diligence before committing money to investments over the phone,” he says. “An independent opinion is always a good idea. This can often come from a registered representative, who can give them the landscape as to the risk and benefits, so they can make an informed and prudent decision — as opposed to one made in haste.” IE