The Real Boiler Room

Hollywood's International Currency Management specialized in trading foreign currency -- and helping clients' money disappear

When asked, "Do you know whether in fact DFX is actually trading on the Interbank market?" Needle replied, "No, I do not."

If Needle doesn't seem qualified to run a business pushing complicated, volatile, and potentially ruinous investments, the people he hired to do the actual selling were even less so. One ICM employee, Max Melrose, had never before been a broker. He worked in the finance department of a car dealership before signing on with ICM in May 1998.

Robert "Brother Rob" Christensen says ICM "reminded you of a boiler-room operation"
Troy Maben
Robert "Brother Rob" Christensen says ICM "reminded you of a boiler-room operation"

Melrose now lives in a sparsely furnished Boca Raton apartment, where he's putting his life back together after a bout with alcoholism and a DUI conviction. He interviewed for the ICM job with Kahn, trained with Needle, and worked as a trader for five months.

Melrose remembers his old boss Needle as a high roller who leased an expensive Mercedes for his girlfriend and lived in an exclusive condo in Aventura. Needle seemed wealthy but was not well liked by his underlings. "In my best description, and being conservative, [Needle] was a complete asshole," says Melrose. "You could not get along with this person, or if you did get along with him, he was getting along with you for a reason. And it was usually because he wanted something. He was just very creepy to deal with."

The pressure at ICM was intense. Traders who didn't produce were fired. Melrose recalls many days when he'd come home and drink a six-pack of beer to calm down. "Howard ran that office like it was worse than Auschwitz," he says. "I mean it was bad. We were constantly degraded, constantly badgered. He was always putting pressure on people. If you didn't put someone in the market on a trade, he wanted to know why."

At the time ICM struck Melrose as a legitimate, if stressful, workplace. "I don't know what a boiler room looks like," he says. "But this place seemed to be real." Looking back on it now, he adds, a lot of the trading practices seemed a little off.

Each morning ICM managers scribbled a trading recommendation on a chalkboard visible throughout the office. Traders would also get "lead cards," names and phone numbers of people who had responded to TV or radio ads. If they were making cold calls, traders would read pitches from a script. If calling established clients they'd push the day's recommended trade.

Employees weren't allowed to take scripts home, and it's been more than a year since he worked there, but Melrose recalls that a typical pitch went something like this: "Hello, I'm Max Melrose, a currency adviser for ICM. A while back you expressed some interest in the for-ex market, and I'd like to tell you a few things about it." He'd launch into a comparison of the Interbank and the stock market, saying, "Trading on the stock market is worth about $50 billion a day, and the Interbank market is worth 150 times that." Then he'd ask about the person's portfolio and what kind of returns he or she was making and give an example of the kind of returns possible on the Interbank. "Had you put $5000 in when we first spoke, you would have made $2200 by now. Is that the kind of money you would like to earn? Let's fill out an agreement."

"The sales pitch," he adds, "was designed to incite someone's greed."

When he sold a trade, Melrose would fill out a trade ticket and take it to a back room, where ICM's "compliance" department was located. He'd hand the ticket through a sliding window to someone he couldn't see and get it back a few minutes later with the "fill" price written on it. The fill price is the exact rate at which the trade was supposedly put into the market, down to hundredths of a cent. That price, notes Melrose, almost never squared with the information he got off the trading-floor computer. When Melrose asked about the discrepancy, the compliance department brushed his query aside. "I would get the answer back from compliance that by the time the trade was placed, that's where it was filled on the [trading] floor. What floor I have no idea."

He found that no matter the trading recommendation from his bosses, his clients always seemed to lose money. "Probably after about two months there, I tried to average wins versus losses," he says. "I was finding that clients were losing more than they were winning on trades because of their trade strategies."

He made good money -- $2000 to $6000 a week -- and the paychecks came on time. But Melrose hated the work and became disillusioned. "It eventually gets to a point where you are getting paid very well but your clients are losing money. How can I sleep at night knowing my clients are losing money?"

Joanne Hadler, a 53-year-old speech pathologist from Cedarburg, Wisconsin, was one of his best clients. Hadler describes herself as a cautious, sensible person who doesn't gamble and had never let anyone invest her money for her. Until, that is, she saw an ad for a foreign-currency trading house in Chicago. Her trading there quickly lost her $85,000.

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