A Byte Out of History: Turning the Tables on Telemarketing Fraud

One Ohio widow was scammed out of some $240,000—her life savings—by 50 different telemarketers. A 92-year-old woman in California lost $180,000, then was conned out of another $5,000 trying to get some of it back. An elderly lady living out West gave away $60,000 from her family’s retirement fund to a telemarketer, only to turn around and agree to take out a costly loan.

These sad stories were just the tip of the iceberg in the 1990s, when telemarketing fraud was in its criminal heyday, mostly preying on the elderly and ringing up an estimated $40 billion in losses from the pockets of American consumers.

But the FBI and its partners fought back during the decade through a series of major investigations that put a sizeable dent in the operations of telemarketing hucksters.

One of the most important of these cases was publicly unveiled 15 years ago yesterday—on December 7, 1995. Dubbed Operation Senior Sentinel, it was as novel as it was successful. Successful, because it ultimately resulted in some 1,200 arrests and hundreds of convictions across the nation. And novel, because for the first time, it put victims themselves in an undercover role to help current and retired FBI agents catch fraudsters.

That case was a spin-off of two earlier major investigations led by the FBI that targeted telemarketing “boiler rooms”—so named because they typically involve a crowded room full of sales persons using high-pressure, often illegal sales tactics on unsuspecting victims over the phone. The first investigation—Operation Disconnect—began in 1991 in Salt Lake City, expanding nationwide and culminating in a wave of 240 arrests in March 1993. The second, called Operation Sunstroke because it was based in Miami, was launched in the summer of 1993. It featured an innovative technique for a telemarketing case: retired FBI agents and informants posing as victims.

At the time, the FBI office in Miami had a close working relationship with its counterpart in San Diego, since both cities were hotbeds of boiler room activity. Operation Sunstroke was eventually expanded by the San Diego Division into Operation Senior Sentinel.

In Senior Sentinel, we added yet another effective investigative twist and a first in law enforcement. In addition to tapping into retired agents, we asked citizen volunteers recruited by the AARP—the American Association of Retired Persons—to aid the investigation by acting as victims. These individuals (some of whom actually were victims) were trained by Bureau agents, who secretly recorded the conversations. The tapes were then forwarded to our office in San Diego, where they were catalogued and indexed for the investigation. More than 7,000 phone calls were recorded between 1993 and 1995.

These three cases—along with Operation Double Barrel in 1998 and others that followed—have had a lasting impact in reducing the scourge of telemarketing fraud.

San Diego Special Agent in Charge Keith Slotter, who helped launch Operation Sunstroke while an agent in Miami, says the days of the massive telemarketing boiler room operations are essentially over. “We came down so hard on the boiler room criminals and sent so many to jail that it discouraged them from going back into the business,” he said. “We sent a psychological message as well as a criminal message.”

The message remains: the FBI is committed to taking down bogus telemarketers, now and in the future.

Senior Sentinel Scams

The following were the most common types of scams in Operation Senior Sentinel. Some of these tactics are still used today—see our tips on avoiding telemarketing fraud.

- Charity Room: Telemarketers asked for money for a charity. In reality, less than 10 percent of the funds went to the charity.

- Prize Room: Callers were told they had won a prize, but needed to send a fee or purchase another product in order to collect their winnings.

- Product Room: A product purchased during a telemarketing pitch was worth less than claimed, had an added cost when delivered, or was never delivered at all.

- Recovery Room: Previous fraud victims were told they could recover their money by paying an upfront fee.

- Rip and Tear: Scammers took the money and ran, collecting as much through fraud as possible and leaving town before they could be identified.

Fraud Scheme That Targeted Senior Citizens

Federal Jury Convicts AmeriFirst Executive in Securities Fraud Scheme That Targeted Senior Citizens Jeffrey C. Bruteyn Faces Up to 180 Years in Federal Prison and Millions in Fines and Restitution


April 17, 2010 - DALLAS—Following a week-long trial before U.S. District Judge Barbara M. G. Lynn, a federal jury has convicted Jeffrey Charles Bruteyn, formerly the managing director of the now-defunct Dallas-based AmeriFirst Funding Corp. and AmeriFirst Acceptance Corp., on charges stemming from his role in fraudulent securities offerings, announced U.S. Attorney James T. Jacks of the Northern District of Texas. Specifically, the jury convicted Bruteyn, 40, of Dallas, on all nine counts of securities fraud as charged in an indictment returned by a grand jury in May 2009. He faces a maximum statutory sentence of 20 years in prison and a $5 million fine, per count, and could be ordered to pay restitution. Bruteyn, who is in federal custody, will be sentenced by Judge Lynn on July 23, 2010.

The government presented evidence at trial that Bruteyn’s scheme raised more than $50 million from more than 500 investors living in Texas and Florida, many of whom were retired and all of whom were looking for safe and secure investments. In connection with the sale of securities, Bruteyn misled, deceived and defrauded investors by misrepresenting, and by failing to disclose, material facts concerning the safety of the securities. Bruteyn personally met with investors and he also arranged for his salesmen to sell the securities.

One of those salespeople, Vincent John Bazemore, Jr., 35, of Denton, was prosecuted in the Northern District of Texas, pleaded guilty in October 2007 to his role in the scheme, and is currently serving a 60-month federal prison sentence. Bazemore was also ordered to pay nearly $16 million in restitution.

In a related case in the Northern District of Texas, Gerald Kingston, of Dallas, pleaded guilty in December 2007 to one count of conspiracy to commit securities fraud, stemming from his role in helping Bruteyn to manipulate the stock price of Interfinancial Holdings Corporation (IFCH). Acting at the direction of Bruteyn, Kingston bought and sold hundreds of thousands of shares of IFCH and effected matched trades to create the false impression of widespread interest in the stock. Kingston admitted that he derived more than $1.6 million in proceeds from his fraudulent sales of IFCH in the course of the conspiracy.

In another related case in the Northern District of Texas, Eric Hall, of Fort Myers, Florida, pleaded guilty in June 2008 to one count of securities fraud, based on his role in a scheme that also involved trading in IFCH.

Both Kingston and Hall are scheduled to be sentenced on June 11, 2010. They each face a maximum statutory sentence of five years in prison, a $250,000 fine and restitution.

At Bruteyn’s trial, the government presented evidence concerning the false and fraudulent representations that Bruteyn made, such as representing that: 1) investments were guaranteed by a commercial bank and reinsured by two AA-rated insurance companies; 2) that the “reinsurers” were “Allianz and Lloyd’s of London, the two largest insurance companies in the world”; and 3) that investments were protected, up to $100,000 per account, by “Fraud and Dishonesty” insurance. In addition, Bruteyn furnished investors a letter stating that the securities were “a perfect investment vehicle for someone in a conservative financial position.”

Bruteyn also falsely represented that he held a Masters of Business Administration (MBA) degree from the Wharton School of Business, and he failed to advise investors that he had been expelled from the securities brokerage industry by the National Association of Securities Dealers (NASD), a private securities regulator, following a series of NASD rule violations. In 2002, he was fined $15,000 and suspended from working as a securities broker for executing unauthorized transactions in a customer account. In a separate incident, Bruteyn was ordered to pay a former client $287,000 because an NASD arbitration panel found that he had engaged in misconduct.

In 2007, in a related case, the United States Securities and Exchange Commission (SEC) filed civil fraud charges in federal court in Dallas against AmeriFirst and its principals, including Bruteyn, Bazemore and others. The SEC charged Bruteyn and others with raising as much as $55 million through the fraudulent offer and sale of AmeriFirst’s secured debt obligations and collateral secured debt obligations. The SEC also charged that AmeriFirst and its sales agents targeted and lured many elderly investors to invest their retirement savings with AmeriFirst based on promises that the investments had little or no risk and were guaranteed through the protection of a commercial bank and numerous insurance companies.

Securities fraud is a major focus of President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

While praising the investigative work of the FBI, the Federal Deposit Insurance Corporation - Office of Inspector General, the Texas State Securities Board, and the SEC, U.S. Attorney Jacks emphasized that the investigation into AmeriFirst continues.

Assistant U.S. Attorneys Alan Buie and Christopher Stokes, and Special Assistant U.S. Attorney Stephanie Tourk are prosecuting.