San Diego's Boiler Room Barons

— Bouquets to Ronald Duane Brouillette Jr.: He could spend more time in the pokey than his nationally notorious mentor, Harold Bailey (B.J.) Gallison. The latter is scheduled to be sentenced early this month, and the former goes to trial later in the month.

On July 9, Gallison, one-time head of a now-defunct penny-stock brokerage -- perhaps the West Coast's smelliest -- is scheduled to be sentenced to prison. Earlier, he pleaded guilty to conspiracy to engage in securities fraud.

Deputy district attorney Steve Davis recommended that Gallison get seven years behind bars, as long as he paid $500,000 to his victims. But Gallison balked at the payment, and Davis withdrew the offer. So at a June 23 superiorcourt hearing, the long-delayed case was held over again.

Gallison and his pusher pals peddled penny stock of dubious value without telling victims that the firm got the shares for nothing as payment for touting them. Often, the stock entered the U.S. through secret offshore channels.

Gallison was so infamous that the New York Times one Sunday devoted well over a page to his antics, noting that he considered regulatory discipline and fines just another cost of doing business.

In a statement to superior court, Davis showed how Gallison regularly laundered money through secrecy-shrouded offshore entities and how he had siphoned money out of his "bucket shop" (a brokerage engaged in activity of dubious legality) when he realized it was going to fail.

An official of the National Association of Securities Dealers, the industry watchdog, wrote a letter to superior court, noting, "Gallison engaged in repeated securities violations over a period of nearly 20 years. He defied regulatory efforts to stop his illicit activities, even after being barred from the industry." The official asked that the punishment fit the crimes.

Gallison had headed Pacific Cortez Securities (née La Jolla Capital), which had closed ignominiously in 1999 after the Department of Corporations charged it with widespread securities violations. Brouillette had cut his teeth there under Gallison, and, like his master, had been barred from the securities business by regulators.

But being defrocked didn't deter Brouillette any more than it deterred Gallison. While Gallison took free stock in exchange for touting it, Brouillette pretended that he got free stock for such services, as far as DA investigators can determine. Brouillette sold it to his customers but didn't deliver the stock, because he didn't have it.

Tapping two different scams for which San Diego is nationally known, Brouillette combined bucket-shop brokerage with the telemarketing recovery room. The recovery room is a particularly pernicious telemarketing scam in which repeat offenders fleece repeat victims. After you've been swindled in a phone scam, a smooth and seemingly kindhearted caller tells you that he is going to hire a lawyer and a private eye to nail those no-good rascals, and he persuades you to chip in.

You get skinned a second time. The mellifluent second caller works for the same boiler room that scammed you the first time. In fact, he may be the initial scamster himself, disguising his voice -- a falsetto flimflammer, as it were. You'll send him your money and never hear from him again.

Some of these recovery-room con artists say they are government officials investigating the first scamster and for a fee will snare the scoundrel. In the mid-1990s, San Diegan Jack Treat Zimmerman and his employees were convicted of running such a scam, according to assistant U.S. attorney Steve Peak. "They would tell victims they were working with the state attorney general's office, or some other law enforcement agency, and for a fee would get the people their money back," says Peak. Perpetrators went to prison as part of the Federal Bureau of Investigation's Operation Senior Sentinel program.

In the early 1990s, William Franklin McCray Jr., was running a San Diego boiler room named Vanguard International. An elderly Oregonian got taken for $30,000 by Vanguard. Then a person claiming he represented the Securities and Exchange Commission called the victim and said that he knew a private undercover agent who could get the fellow's $30,000 back for only 10 percent of the total.

It turned out that the so-called SEC investigator was another Vanguard telemarketer, and the Oregonian lost even more money. McCray was not prosecuted for that one but later told people he could make them as much as 73 percent a year trading foreign currencies. In early June, he was sentenced to 137 months in the hoosegow on that scam, and he will defend himself on similar charges again in October.

Brouillette ran his bucket shop/recovery room out of posh hostelries such as La Costa, according to Davis. Unctuously, Brouillette told people that he was truly sorry they had lost so much at Pacific Cortez. To help them get back on their feet, he would sell them common stocks at half-price or even cheaper -- say, a $1.50 stock for only 75 cents. He claimed he had received the stock for free as a payoff for promoting it.

The victims were all elderly. One Northern California man fighting cancer -- "not on his game," says Davis -- lost a million dollars. You see, Brouillette had walked out of Pacific Cortez with a suckers' list. Telemarketing scamsters pay big bucks for lists of old people with lots of money and no sales resistance -- ideally, senile.

A few of Brouillette's elderly victims knew enough to go on the Web and check the stock. Sure enough, it was selling for $1.50. How could they lose if they got it for 75 cents? Well, they could lose if Brouillette never delivered the stock. And he didn't, because he didn't have any stock, Davis believes. Victims screamed loudly. Brouillette told them their shares were safe with a company in Canada. Davis checked it. It had never heard of Brouillette.

For the people who really screamed loudly, Brouillette "had an exit strategy," says Davis. "He wrote a check that would bounce."

Few victims asked the critical question: If Brouillette could sell the stock on the market for $1.50 a share, why in the world would he try to sell it to somebody for 75 cents? Why didn't he just sell it at $1.50 and pocket the money?

The few times he was asked the question, Brouillette would say, "It's my karma. I want to make things right with you. It's humanitarian," reports Davis.

Last month, a superiorcourt judge ruled that there was sufficient evidence for Brouillette to be bound over for trial late this month on ten grand-theft charges. He is already in the slammer because he was nailed in February for cashing stolen checks. The judge kept bail at $500,000.

The great irony is that Brouillette may well get more years than his former mentor, Gallison, Davis says. Under sentencing guidelines, Brouillette could get 25 years.

That wouldn't bother a Salt Lake City company. It told Davis that it had promised a slug of its stock to Brouillette so that he could tout it and also paid him a $20,000 advance. The company never heard from him again. But he still tried to sell the stock to his victims.

Brouillette's lawyer said he would check his client for permission to talk. I never heard back.

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