Boiler-room scam

Fraud

The Vanuatu Chief Justice sentenced three Canadians to 18 months jail each for unlawful dealings with securities in what court described as “a major international fraud”.

The three defendants, Narendra Singh, Brian Luftspring and Michael Rhodes, arrived in Vanuatu during the early part of 1994, to sell worthless company shares in a “boiler-room” type scam operated through two companies known as McCullen and Suarez Limited and Buchannan Weir Limited.

The “boiler-room’ operation is believed to have been set up in Vanuatu by a man known as Michael Kennedy together with his associates. Working from an office in New Zealand, sales men canvassed by telephone potential victims in Australia and offered to send them information on investment oppor tunities. Any persons expressing interest

were sent professionally produced

share newsletters extolling the virtues of investing in Central and South

America, especially Mexico. The group also sought to attract investors by plac ing advertisements in major Australian national daily papers and financial jour nals.

The three defendants were part of a team of salesman based in Vanuatu who applied high pressure sales techniques

to persuade potential Australian

investors to part with large sums of money through the purchase of shares in two companies, Mexigulf Sealand Inc and BW Mexican Real Estate Fund Inc.

Both companies were incorporated in the Caribbean finance centre of Turks and Caicos. According to the promo tional material, these companies owned subsidiary companies which in turn owned undeveloped real estate in Mexico. The victims were promised

their investments would be used to fund Mexican real estate development.

Unknown to the victims of the fraud, the companies incorporated in Turks and Caicos were no more than shell companies which appear to have had no assets. Rather than use the monies for genuine investment purposes,

Downtown ort Vila: the hub of the Pacific’s financial centre

Kennedy and his associates used the money to support an extravagant jet-set ting lifestyle. Monies that were not spent were channeled through other offshore finance centres to bank accounts controlled by Kennedy and his associates.

“Everyone involved arrived in

Vanuatu under a false name. They all knew each other and the office staff in Port Vila knew them by their adopted personae. They played the game 24 hours a day,” public prosecutor John Baxter Wright told the Supreme Court..

Dealing mainly with Australian individu als, the salespeople told potential investors the price of land was rising and “it was a good time to invest there”.

“Every company set up here has to have a 90-day lifespan. It was therefore planned the scam would have lasted about three months and closed up as quickly as it was set up, only to be replaced by another company,” Baxter- Wright added at Supreme Court hear ings. He produced copies of blank share certificates which, he said, were part of a stock of five million pre-printed copies found in the company’s Vanuatu offices during a search in April.

One of the Australian victims told the Vanuatu Supreme Court during hear ings this month that he had been lured to invest some U 55145,000 in the fraud. It was a complaint from an Australian investor that triggered the Vanuatu Financial Service Commission (created last December to “protect the investors in Vanuatu from financial loss arising from dishonesty or “incompe tence” of people in the finance busi

ness) to start enquiring about Port Vila based Me Cullen and Suarez Inc.

On April 20, Vanuatu Financial Services Commissioner Richard Carpenter obtained a warrant to search the Port Vila-based office and closed it down. All bank accounts used in con nection with the fraud, including some in the Isle of Man, were frozen.

“Were it not for the diligence of the Vanuatu Financial Services Commissioner, the scam would have succeeded in netting considerably more than the Asl.2 million (US$870,000) which had been dishonestly obtained in the enterprise,” Chief Justice Vaudin d’lmecourt said.

“Vanuatu’s financial services indus try, which contributes 15 percent towards the country’s gross domestic product, is an important element of Vanuatu’s economy. It is my duty to pro tect its integrity. If Vanuatu became known as a haven for fraudsters, the effects would be disastrous. We will not tolerate such abuse of our good name,” d’lmecourt said.

Kennedy, believed to be the master mind of the whole operation, escaped the Vanuatu jurisdiction and fled the island state in April by chartering a plane from an outer island. ■