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Want to make a buck in the market? You can be bilked of your dough.


IN AN upstairs bedroom a woman lay dying of cancer. Downstairs in the living room her husband was talking business in low tones with a distinguished-looking stranger.

The stranger was Joseph H. Schoenberger, 70, and every inch of his well-groomed appearance suggested the prosperous, sincere businessman, the pillar of the community.

Their business completed, Schoenberger suggested, “Let us now bow our heads for a few moments in silent prayer for your afflicted wife.”

They did so. Then Schoenberger walked out of the house with the man’s last savings, $1,800, in his pocket.

Schoenberger is a swindler with a criminal record going back to 1930.

When he and four others were arrested and indicted as a result of an investigation by Post Office inspectors last month, Postmaster General Arthur Summerfield called them “five of this nation’s most callous confidence men.”

The Post Office, which made the charge that Schoenberger had swindled the dying cancer victim’s husband, said this gang, operating in Western New York State, had bilked 50 known suckers—most of them elderly people—of at least $330,000. Inspectors predicted the known total would be far higher when their investigations are completed.

These men were selling their victims oil leases at $20 per acre. The leases had cost 20 cents to 50 cents per acre—and that’s about what they were worth.

The victims of this particular gang were not unusual. Americans today may be too sophisticated to buy the Brooklyn Bridge—but if stock in it were offered to them at the right price . . .

There is more truth than jest in this, as newspaper headlines across the country amply testify.

“$50,000,000 Loss to Public Charged in Stock Promotion.” “Fraud of $6,000,000 Laid to Two Brokers.” “Mine Stock Cash Buys Lodge for Swindler.” “Charge $1,000,000 Swindle in Oil Stock.”

People throughout the country, on the trail of the fast buck-and the quick killing, are being taken by phony stock promoters as never before.

The victims are being swindled mainly by “boiler room” operations, according to the Securities and Exchange Commission, a Federal agency which, among its other duties, polices securities transactions.

Although it is impossible to calculate how much money this confidence game operation snares from the public, the SEC notes that ten boiler room operations broken up recently caused an actual loss of over $100,000,000.

Just what is the boiler room and how does it operate?

A boiler room is a setup for obtaining inflated prices for virtually valueless stock.

The symbol of the boiler room operator is the telephone. Although the promoter may rent a small office in a choice location, such as New York’s Wall Street, it is usually just front for a backroom at a considerably less impressive address.

There the squads of high pressure salesmen, known as “loaders”, labor away at a battery of phones. Each man has his own cubicle with a hood over the telephone mouthpiece to guard his conversation from the surrounding noise. Long lists of suckers, potential customers, hang on the walls in front of them. The crowding and the heat often make the salesmen strip to the waist . . . thus the name of boiler room.

These operations are concentrated in New York, but 90% of their sales are made to customers in other cities. To keep down long distance phone bills, many salesmen use a three-minute egg timer to judge the length of the pitch. If the quarry isn’t hooked when the sand runs out, they just hang up.

Even using this device one firm which was closed down recently had phone bills averaging $45,000 a month.

After introducing himself as a friend of a friend the typical boiler room salesman tells his prospect that he’s letting him or her in on the ground floor of a special stock.

Assistant New York Attorney General Carl Madonick, an expert in the fight against security swindlers, describes it this way: “In a recent case, a Los Angeles promoter induced New York brokers to list fictitious quotations on a stock which then appeared in a legitimate publication, the National Daily Quotation Service. Stock was supplied to a securities firm in Denver which in turn supplied stock to two firms in New York … A market was made to appear for the stocks at the prices quoted . . . which was all the salesman needed.”

Then came the pitch. A well-to-do farmer in Iowa picks up his phone and hears a cultured voice saying: “Mr.———? This is Mr. Blank calling from New York. A friend of yours suggested I call you to let you in on a terrific stock my firm has at $1.75 a share. I’d like to offer you 1,000 shares, but I have only 200 shares I can allot to you at this price. . . .”

If the farmer is like too many other Americans, he grabs the 200 shares. Within a few days a souped-up progress report will be sent to him and then comes another phone call.

“Did you hear? Your stock is now $2.25.” Another heavy pitch is made and soon the sucker is thanking the salesman for the privilege of buying 500 more shares at $2.25 . . . and on and on till the saturation point is reached.

If the sucker wants to sell some of his stock, and is lucky enough to get an answer when he calls the New York office, he will be told that “there’s no market at present for the stock. We’ll call you.” And that’s the last he’ll hear.

False and misleading statements violate the anti-fraud provisions of Federal securities laws. But because the promoters sell by phone and avoid putting anything in writing, the SEC finds it tough to make a fraud charge stick.

“Misrepresentation of a stock over the phone is an awfully hard thing to prove,” Philip A. Loomis, chief of the SEC’s Trading and Exchange Division, said.

In a recent case prosecuted by New York Attorney General Louis Lefkowitz, it was found that 4,000 persons in the United States and Canada had been sold $1,000,000 worth of stock in Texas Union Oil Corporation.

Literature put out by two firms pushing the stock, Lefkowitz said, indicated that the company “had a vast potential which may result in tens of millions of dollars from oil reserves owned by the company.”

Actually, he said, the total amount of oil produced from the company’s oil fields in Estill County, Kentucky, was 87 barrels, worth $252.26.

The charge against the promoters read that “the only other producing property owned by the Texas Union Oil Corporation is a cow which, it has been testified, produces roughly six or seven quarts of milk a day for the purpose of providing for the food and thirst requirements of a caretaker by the name of O. R. Jones.”

This sounds much funnier to those who didn’t have stock in Texas Union Oil Corporation.

With so little risk for so much money, it was only a matter of time before gangsters moved into this lucrative con game.

Attorney General Lefkowitz charges that mob-dominated securities houses have been in the boiler room business in New York and 38 other states.

“We are satisfied that we have come across a network of people with criminal records in the securities business,” he said.

The pattern they use to get into the business was described by the Attorney General.

First, they seek out a legitimate, established firm that is having financial difficulties. Through a front they lend money, or even threaten bodily harm.

Secondly, they put one of their own men in as president.

Thirdly, they start operations as a boiler room.

In New York State a law has been passed barring persons convicted of certain crimes from dealing in securities, and all securities dealers must be registered with the Attorney General’s office.

The legislation was speeded when a notorious gangster still in jail was named as the man behind a boiler room operation. The racketeers can now be named.

Carmine Lombardozzi: An ex-convict, and a delegate to the infamous Apalachin convention who was jailed for refusing to reveal what happened at Apalachin, has been connected with the firm of Philip Newman Associates.

James C. Graye: Head of a -firm bearing his name which was banned for selling worthless stocks. He sometimes used the alias James Webb, has a criminal record dating back to 1927 and has been convicted of auto theft and robbery.

Murray Taylor: Named as sales manager of Lincoln Securities Corp., has been convicted of arson, conspiracy and served two years on a charge in connection with the Lindbergh kidnapping.

Dominick Mundo: Arrested recently on a boiler room charge, was on parole until 1972 on an assault and robbery conviction.

Arthur Tortorella: Found by the Attorney General’s men in the Philip Newman set-up and reported by them to be “a member of the Brooklyn mob as well as a henchman of Carmine Lombardozzi,” with a record of burglary and grand larceny convictions.

The list can go on and on. And it exists strictly because of our own greed. The quest for the quick dollar leads to long range grief.

This pattern was amply demonstrated this past summer in a swindle charged to a Long Island man. Here the profits were assured, insured and reassured. And the suckers believed it In papers filed against Jack Kissel, the prosecutors charged that the names of Queen Elizabeth and Captain Video had been used to promote stock sales aimed at a $5,000,000 killing.

The ventures were reported to include a non-existant harness racing track in Winnipeg, Canada, and the Spaceland Amusement Park in Garden City, New York.

The promoters were charged with making false representations, including statements that the Queen would officially open the track and that Captain Video—real name Al Hodge —would direct the amusement park.

Investors were told, according to the charges, that the races at the track would be fixed so that stockholders would be assured of large profits, and that the stock would be guaranteed by the Canadian government.

An additional charge of perjury has been placed against the promoter for telling the Attorney General’s Office he had never been convicted of a felony when in fact he had been convicted for bigamy and grand larceny.

Nothing is too far fetched for the stock promoter. Take the story told to suckers by Satiris Fassoulis. It involved a “dream” ship, a mythical corporation and counterfeit American Telephone and Telegraph bonds and it led to his arrest by the FBI.

The government charged that Fassoulis tried to boost his fortunes by underwriting the “Continental Chartering and Snipping Corporation” with a $350,000 loan from an Ohio bank.

Collateral was $346,000 in counterfeit AT&T bonds. A New York bank received the bonds as agent for the Ohio bank.

In promoting his scheme, Fassoulis told investors that the company had the Amerosia, a “dream” ship. Fassoulis also claimed to be backed by one James Eichler, whom he described as representative of a wealthy Greek shipping magnate. Eichler did not exist Neither did the ship.

The scheme collapsed when the New York bank discovered that the AT&T bonds were counterfeit. It had held them for three months.

Veteran stockbrokers know that it is difficult for the best of them to pick stocks that will result in windfalls. SEC Chairman Edward Gadsby points out that the fellow who rushes in to buy stocks because he got a hot tip somewhere “might just as well put his money at Laurel (the race track) or Las Vegas.”

Boiler rooms like to push stocks of dramatically named companies in glamorous fields. “Now, any stock with electronics in its name seems to have great appeal,” said an SEC spokesman. “Before that it was uranium and before that oil.”

In dealing with unknown stock salesmen, the SEC recommends, “evaluate their representations with an attitude of hard-headed skepticism.”

• Don’t deal with strange securities firms.

• Don’t buy on tips and rumors. Get all the facts.

• Tell the salesman to put the information in writing and mail it to you. Save it • Check up on his firm through your own bank.

The Better Business Bureau warns that the more insistent a salesman gets in using high-pressure sales tactics, or the more his tips or rumors are attributed to “inside” sources, the more cautious you should become.

Be suspicious of any attempt to high-pressure you into buying a security before you have had ample time to get all the facts you need about it. Be especially suspicious of attempts to sell you securities on the basis of “inside dope.”

The “dope” could turn out to be you. • • •

1 comment
  1. Paul Carney says: February 9, 200912:37 pm

    Bernard Madoff is just the latest incarnation from a long line of such swindlers.

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