The Real Boiler Room

Robert "Brother Rob" Christensen began trading in foreign currency in February 1998, and it didn't take long before he was making a killing. Or so it seemed. By his own reckoning the $135,000 he had invested with a South Florida trading firm had ballooned in value to more than a quarter million dollars, an increase of almost 90 percent in five months. A fat return, even by recent bull-market standards.

There were ups and downs along the way, but that's the nature of the game. Foreign currency is a volatile, speculative arena that fluctuates so fast it makes the Dow Jones Industrials look dowdy by comparison. Market movement is measured in hundredths of a cent, called "pips." The idea is to buy one currency with another -- Japanese yen with American dollars for example -- in the hope that changes in the exchange rate will make the money you bought increase in value relative to the money you sold.

And it was easy. All Christensen had to do was follow his trader's advice, and the money seemed to pile up.

Though he'd dabbled in investing, Christensen had never played the foreign exchange markets prior to getting a cold call from International Currency Management in Hollywood. He knew nothing about the Interbank market, a network of banks and financial institutions that sell currency to one another 24 hours a day, around the world. Estimates put the value of Interbank trading at $1.5 trillion daily. But unlike the New York Futures Exchange or the Chicago Mercantile Exchange, it has no physical manifestation, no trading floor. It is a virtual market that moves money in multimillion-dollar chunks. Traditional thinking has it that the Interbank is no place for the small, inexperienced player. The Internet has helped level the playing field, however. Now anyone with a computer and a modem can get access to exchange rates, find individual investors who chalked up astronomical returns, locate a trader, or chat endlessly about the nuances of the Interbank.

Currency is forever in flux, so there's big money to be made on a daily basis. It's risky, but a smart trader can minimize that risk by placing "stop losses" to pull a trade out of the market automatically when it starts going bad. At least that's how an ICM trader sold it, says Christensen.

But he wasn't buying, at first. "I was very reluctant," says the 53-year-old self-employed mason from Boise, Idaho, who spends much of his free time traveling the country giving self-improvement talks. "I told him I wasn't interested. He called back a second and third time."

On each call the ICM trader would tell Christensen, "You'd be a wealthy man if you'd gotten in on this trade," or something very close to that. It was a smooth and convincing spiel, and it soon paid off. A few days after the first call, Christensen cut a check for $10,000 to open his ICM account.

His luck ran cold those first few trades, and the $10,000 quickly evaporated. Christensen's trader recommended a more aggressive strategy with a different ICM trader. Eager to work his way back to the break-even point, he cut another check for $10,000.

Lady luck smiled. His trading went well, his profits were mounting. On paper. But when he tried to cash out, Christensen got a big surprise. ICM president and CEO Howard Needle told Christensen he owed the trading firm money. Worse, he would have to pay that money before he could get his profits, a statement only slightly less ludicrous than it sounds.

Christensen was leveraging trades, meaning his account controlled more in foreign currency than it was actually worth. The ratio was 4 percent, so that every $4000 Christensen put into his account controlled $100,000 worth of whatever currency he happened to be trading. Leveraging is advantageous if the market is in your favor, because the more money you control, the more you stand to make. But if the market's against you, it's possible to lose all your investment and go into the hole besides. Needle told Christensen that, unbeknownst to him, ICM had covered his previous losses, and even though he was now in the black, he still owed the company money.

That didn't sit well with Christensen, who says the only account tally he ever had was the one he kept himself. "I was going along, and through the whole period no one could tell me what my balance was," he says. "Big red flag there." And there were others: His account was pooled with other investors' money instead of being held separately as he was assured it would be, and the foreign-currency prices ICM gave him didn't match those he found through his own research.

Not one to fret long-distance, Christensen got on a plane in Boise and flew to South Florida in May 1998. He showed up at ICM's office, 3900 Hollywood Blvd., early the next morning before the receptionist got to work, and let himself into the back room. He expected the hushed, muted environment of a bank. Instead he found "a boiler room."  

"There was nothing but a big room with seven or eight guys in it," he later testified before the State of Idaho's Securities Bureau. "They had one or two guys over on the far side that were doing phone solicitation just as fast as they could. They had one computer screen, if you could call it that." Currency prices flashed across the computer screen, which hung from a swivel on the ceiling. A single cable snaked from the screen to somewhere outside the room, he recalls.

He hung around asking questions for most of the morning until Needle finally kicked him out and told him never to come back. "Another red flag went up in my mind," Christensen says in testimony. "What kind of business would run the clientele out the door? Were they scared I was going to find some incriminating things happening here? I mean, what? This was crazy."

Before he left Florida, it got worse. Needle threatened to pull all of Christensen's trades out of the market unless he could come up with another $100,000. That meant Christensen would have to suck up losses of $135,000 with no chance of regaining ground unless he came up with more money. He told Needle he didn't have $100,000, that he could maybe scrape up $75,000 if he had a few days to work on it.

Christensen wrote a postdated check for $75,000 and went home.

As harrowing as it was, his experience is not unique. Court files show some 200 people lost most or all of their investments with ICM. The lucky ones are out less than $10,000, the less lucky $100,000-plus.

ICM clients aren't the only ones who've come up short. In September 1998, partners Needle and Ellis Kahn sold the company to another trader, Mark Singer, who renamed the company Forex Fidelity. (Singer did not respond to inquiries at his Weston home or his lawyer's office in Fort Lauderdale for this story.) Three months later his accountant discovered the books were short $700,000, according to court files. Singer quickly filed bankruptcy.

Bad for him and everyone who did business with ICM. Good for the public. The case touched off a flurry of legal action that sheds light on a growing South Florida industry that would rather keep its activities hidden.

For the year it operated, ICM/Forex Fidelity was one of about two dozen foreign-currency exchange firms that call Broward County home. Some of them may be aboveboard, but people who monitor these things think most are simply boiler rooms filled with salesmen reading scripted pitches over the phone to separate the unwary from their cash. "I have not found one that legitimately trades foreign currency," says Joe DiGennaro, a Broward-based banking investigator with the state comptroller's office. "Just about anyone that invests with them has no chance of making any money."

Why not? Because for the most part, the money is never invested. More often it ends up in the pockets of the people who run the boiler rooms or out of reach of U.S. authorities in a Bahamian bank account. "People are encouraged to keep investing. When the person asks for their money back, the calling ends," says DiGennaro, describing a typical foreign-currency scam. "The money is collected in Florida, pooled, and sent offshore."

That's what federal investigators say happened in a case against three Broward County men who ran Unique Financial Concepts, a Boca Raton foreign-currency exchange house that stands accused of bilking clients out of millions of dollars in 1998. (A U.S. District Court judge granted an injunction against the company in 1998, but that decision is now on appeal.) And it's what was allegedly going on with ICM/ Forex Fidelity, according to court files. "No evidence has been found at this time that the Debtor ever invested any of its customers' funds," states a filing from the U.S. bankruptcy trustee.

Last December detectives from the Broward Sheriff's Office executed a search warrant and seized ICM/Forex Fidelity's records. No charges have been filed in the case, and investigators aren't talking. "There is an ongoing criminal investigation, and I am not at liberty to make any comments," says BSO detective John Calabro.

But in a roundabout way, Singer's own attorneys say more than the sheriff's department about why the investigators are interested in ICM/Forex Fidelity. Attempting to get Singer's business materials returned, his attorneys filed a complaint against the Broward Sheriff's Office. In it they write, "the defendants [BSO], upon information and belief, via communication between the Defendant Broward Sheriff's department and an associated counsel in this matter informed the Plaintiff [Forex Fidelity] that it was the Defendants' belief, that the trading activity was nonexistent."  

Boiler rooms have been around these parts for decades selling everything from corn futures to penny stocks. There's a strip of such establishments in Boca Raton that federal investigators refer to as the "Maggot Mile." Foreign currency is simply the South Florida scam du jour.

Unscrupulous telemarketers aren't here just for the weather. They like the area's fast-money credo and steady supply of well-off retirees and the state's homestead laws that allow someone in bankruptcy to keep his or her home, no matter how much money he or she owes. The homestead act, which is supposed to protect retirees, also allows boiler-room operators to shield their own assets, says John Drohan, a New York attorney with more than a decade of experience trading on the Interbank market. "If you have creditors you want to evade, you can put money into your home," says Drohan. "Some of these predators have relied upon that act to protect their own assets while they prey upon others."

If they do run afoul of the state's telemarketing regulations or federal regulations on futures trading, the civil penalties that result usually mean little, he adds. "When they accrue enough civil claims, they will simply shut down and open across the street in another shell."

The ICM/Forex Fidelity case has been in one court or another for more than a year. In addition to his lawsuit against the sheriff's department, Singer is suing ICM to recover the $700,000 he claims was missing from the business when he bought it. There is also a regulatory action the State of Idaho took against ICM, fining the company for doing business there without being registered and ordering them to make restitution to Christensen. It's a legal imbroglio. But sorting it out provides a good picture of how one South Florida foreign-currency exchange shop worked and the people behind it.

Howard Needle founded International Currency Management in August 1997. His partner, Ellis Kahn, was involved through a Bahamian foreign-currency trading shop in which he has an interest that served in an advisory capacity to ICM. (Neither man would talk to New Times for this story. Reached by phone at his Golden Beach home, Kahn said, "For me to comment how ICM was run when there is pending litigation is not a good idea." Needle did not respond to calls and letters to his beachfront apartment in Miami.)

Kahn, age 57, pops up with surprising frequency in the databases of both the Commodities Future Trading Commission (CFTC), a federal agency that regulates futures trading, and the National Futures Association (NFA), an industry group that registers and trains traders. Both groups take complaints from customers, and both can issue civil complaints and impose fines.

In 1992 the CFTC fined Kahn $510,000 and the company he represented, JCC Inc., another $50,000. (Kahn was president of JCC at the time). An appeals judge upheld the ruling saying, "… [T]he weight of evidence sufficiently establishes that Kahn was aware -- at least constructively -- of the fraudulent sales solicitation activities and that he had the power to prevent these activities but failed to do so." He also failed to keep good records and adequately supervise employees, the ruling states.

Further, "… Kahn and others taught [employees], when soliciting customers, to minimize risk, to illustrate profit potential with phenomenal or aberrant historical moves, to characterize the $2500 management fee as insignificant compared to potential profits…," according to the ruling. The CFTC believed "… that Kahn's illegal activities render him unfit for registration in any capacity."

Kahn argued that the fine was excessive given his self-estimated net worth of $718,000. But the judge believed Kahn's net worth at the time was closer to $1.3 million and let the fine stand. (Property records show that Kahn paid $600,000 for his five-bedroom, six-bath waterfront home in 1987. Homes in his neighborhood now sell for upward of $1 million.) To date Kahn hasn't paid the fine. With accrued interest the fine is up to $628,000 as of the last accounting in April 1998.

In a 1983 run-in with the CFTC, Kahn found himself fined $208,000 and had his trading privileges suspended for 12 months for violating commodities pool regulations. The NFA has also slapped his wrists repeatedly, fining JCC for using high-pressure sales tactics and not adequately supervising employees and fining Kahn another $150,000 in 1992 for "attempting to cheat, defraud or deceive commodity futures customers…," among other things. That time, the NFA cast him out of its ranks permanently.  

Those are the actions brought by the agencies themselves. Kahn has also accumulated 32 customer complaints lodged with the CFTC and 4 more with the NFA that claim pretty much the same things: high-pressure sales, failure to supervise, and failure to disclose risk.

Needle, age 42, is no stranger to the regulatory agencies either. His history with the NFA goes back to 1991, when it issued a four-count complaint against him personally and the company he owned, Futures Financial Advisors of Palm Beach. The complaint charged the company, Needle, and others with fraud and deceit, high-pressure sales tactics, and downplaying risks to investors. Needle settled with the NFA without admitting or denying the charges. His company was ordered to pay a $25,000 fine.

In 1993 Futures Financial Advisors again ran afoul of the NFA for much the same reasons. Again Needle settled without admitting or denying the allegations. He was suspended from the NFA for 60 days, ordered to pay another $25,000 fine, and was permanently barred from supervising any other NFA member or associate. His third transgression came in 1997, when the agency filed a complaint alleging that he used deceptive and misleading promotional material. This time he was suspended for 18 months, though he again neither admitted nor denied the charges.

Customer complaints lodged with the NFA against Needle include charges of failure to follow instructions, misrepresentation, fraud, negligence, and high-pressure sales tactics used to induce unsophisticated clients to invest in corn and wheat futures. The CFTC lists another 13 complaints filed with that agency against Needle and his company.

Kahn has been Needle's mentor for years. According to a source who asked not to be identified, Needle was working as a waiter when Kahn hired and trained him to work in the futures-trading industry.

Paperwork points to JCC as the duo's common denominator. Both were involved in the firm -- Kahn as a principal and Needle as an associate -- in the early '80s. Over the years Kahn has been involved in a string of businesses either peddling futures, advertising for futures dealers, or selling lists of sales leads: Commodity International Inc., Commodities International Holding Corp., Media Response Inc., Investor List Inc., and Investment Advertising Inc.

With both their registrations pulled, Needle and Kahn were outcasts from the NFA and the futures-trading industry when they set up ICM. So they moved into the virtually unregulated arena of the Interbank and foreign currency where, thanks to a U.S. Supreme Court ruling, just about anyone can set up shop.

The CFTC regulates established futures exchanges and boards of trade. (Its sister agency, the Securities and Exchange Commission, oversees stocks and bond markets.) But in 1997 the U.S. Supreme Court ruled against the CFTC when the agency tried to shut down a foreign exchange shop allegedly defrauding customers. The court held that because the shop was trading currency on the Interbank and not on an established futures-exchange market where currency is also traded, it was not beholden to CFTC rules and regulations. With that, foreign exchange shops purportedly dealing with Interbank popped up in South Florida like dandelions in the spring.

Responding to the ruling in the only way it could, the CFTC in 1998 issued a warning to anyone doing business with foreign exchange shops to be on the lookout for fraud. Last month CFTC chairman William Rainer visited the issue again, testifying before the Senate on the need to expand his agency's power to protect consumers. "Abusive promoters have exploited regulatory gaps to sell foreign-currency contracts to financially unsophisticated individuals…," he testified. "Many of these enterprises simply pocket investor funds…."

Despite all their scrapes with the NFA and CFTC, neither Needle nor Kahn had ever been brought before a public forum to explain their business practices. That changed when Robert Christensen became a dissatisfied ICM customer.

When he returned to Boise from his impromptu visit to ICM's Hollywood offices, Christensen quickly cancelled the $75,000 check he'd written to stay in the Interbank market. "I started talking about it with the guys, and they said, 'You're crazy.' I decided not to throw good money after bad."

Then he got mad and took his case to the State of Idaho Securities Bureau. They quickly determined that ICM wasn't registered to solicit business in the state. The case went before an administrative law judge, who found: that ICM led Christensen to believe his investment would be segregated when in fact it was pooled with other investors' money; that they failed to produce account statements; that they also neglected to inform him of Needle's extensive history of trouble with the NFA and CFTC. The judge slapped Needle and ICM with a cease-and-desist order, fined him $35,000, and ordered him to pay Christensen back the $135,000 he lost. Needle has not responded to the judgment. (Kahn was not named in the case.)  

More important, at least for the rest of the investing public, is the fact that the judge got Needle to give sworn testimony via a phone line from Needle's North Miami Beach apartment. That testimony paints Needle as inexperienced, inept, and in the dark as to what his business was doing.

Needle describes his educational background this way: "I have a high-school diploma. After high school I went on to industrial air conditioning and heating school to move into my father's business." Later he testifies to hiring an accounting firm to help him manage ICM because, "… I do not have any business background. As you previously asked me about my education, I have a high-school diploma. I have no real business knowledge…."

He testifies that in 1997, shortly after being suspended from the NFA, he was introduced to the Interbank business by a lawyer in Chicago who hired him to bring in clients. Needle's job was to solicit accounts and send the money to Chicago, where the money was supposedly traded; he isn't quite sure if it really happened: "To the best of my knowledge it was traded in the Interbank market or through a counter party," he says.

He worked for that company for two weeks. Then he took a trip to California to meet with a man named Howard Friedman, who promised to teach him more about the Interbank. Friedman is a principal in a company called DFX, which would soon play an important role in ICM's business.

In August 1997 Needle established ICM in Hollywood, Florida. The company collected money from customers and put it in the Interbank market through DFX in California. At least that's what Needle thinks happened with the cash. His testimony again indicates he isn't quite sure.

"Would you describe what DFX was doing once you placed a customer with them?" an attorney representing the State of Idaho asked.

"I really don't know," Needle replied. "I believe they then put it into the Interbank market, whether it be with a bank, or through a financial institution, but I could not testify what institution, what bank, or what counter party."

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.

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.

She sought help from other investment houses, other advisers. A contact referred her to ICM and Howard Needle who, she says, called the Chicago traders a scam. "[ICM] said, 'We will help you rebuild your account,'" she recalls. "Then they asked me to invest money with them, initially $6000. Soon after [that], they called me and said, 'Your money is really very vulnerable.' They said they would allow me to trade in blocks of one million yen if I put $50,000 in with them. Which I did."

Her experience mirrors Christensen's and those of a half-dozen other former ICM investors interviewed for this story. She began trading in June 1998, and at first thought she was doing fine, even pulled some money out of her account. A few months later, things began to go wrong. In the end ICM blamed the losses on the market.

Melrose would assure her that her trades were placed as she wanted them and that she could get out of the market quickly if necessary. But she discovered her orders weren't followed and she'd taken huge losses. When she asked Melrose to fax her statements, he told her the company wouldn't allow it. For a while Hadler and Melrose had been in almost constant contact, then she had trouble getting hold of anyone in the office at all. Hadler's voice rises as she recalls the growing realization that her life savings was in the hands of someone she increasingly distrusted. "I have people doing things to my account I know nothing about, and I am supposed to say that's OK?"

In a last-ditch effort to recoup her losses, Hadler sent ICM another $65,000, the rest of her savings. Melrose set up trades for her and promised to watch them carefully. Days later he was nowhere to be found. Melrose had car trouble, then problems with his back, then was fired from ICM. His supervisor told him the company suspected he was using drugs and missing too much work. He believes the real reason is that he was becoming too much of an advocate for Hadler, taking her losses too seriously. "Joanne Hadler was starting to come down on them," he says. "I think they wanted to separate our cohesion."  

Hadler was turned over to Mark Singer, the trader who purchased ICM from Needle and Kahn. He told her the market had gone badly against her, the account was overdrawn, and she would need to send another $21,000 just to cover her losses. He wasn't pleasant about it, either. "I had never talked to anybody who is the president of a company who acted like this guy," she recalls. "He acted like a gangster."

Hadler is a trusting sort who believes Melrose was sincerely trying to help her, even though his account management lost her a lot of money. She flew him to Wisconsin because he agreed to give her an informal videotaped deposition and because she was worried about him. "Max was destitute," she says. "Really a mess. I frankly brought him up here because I did want to talk to him and because I was concerned for him as an individual." On the tape Melrose and Hadler sit side by side on her plaid couch, talking straight into the camera while they recount the mismanagement and missteps that ultimately cost Hadler $120,000.

What's obvious from the tape is that many of the warning signs the CFTC points out in its 1998 consumer advisory were there in her interactions with ICM: an emphasis on leveraged Interbank trading, a prediction of large profits with minimal risk, and opportunities that sounded too good to be true. As the alert states, "Getting your money back once it is gone can be difficult or impossible."

Meanwhile the foreign exchange business chugs right along. A filing with the Florida Department of State indicates Needle and a former ICM trader named Arnold Zager formed a new company, FX Trading Group Inc., in early 1999. The company's business address is a lawyer's office in Coral Gables where their incorporation papers are kept.

Contact Bob Whitby at his e-mail address:

Sponsor Content


All-access pass to the top stories, events and offers around town.

  • Top Stories


All-access pass to top stories, events and offers around town.

Sign Up >

No Thanks!

Remind Me Later >