An investment advisor is among the victims of an alleged boiler-room operation that is being investigated in three provinces for soliciting more than $1 million from clients.

The 50-year-old married financial advisor from Saskatchewan — who lost about $150,000 — is too embarrassed to be publicly identified. But the advisor says he was duped by a cold call offering an entry into the volatile world of derivatives and foreign currency.

He admits he was impressed by the company’s slick Web site, which features currency exchange rates and other market information. It even uses a similar shade of blue to that of a site run by a reputable financial services company which has a similar name.

Regulators in Ontario, Saskatchewan and New Brunswick have issued trading bans against Saxon Financial Services, which is not connected to the highly-regarded Toronto Stock Exchange-traded investment manager Saxon Financial Inc. (TSX:SFI).

According to the regulators, a string of companies, named International Monetary Services, fxBridge, Saxonfx, Meisner Corp, Merchant Capital Markets and MerchantMarx are operating as closely-related entities in the highly-sophisticated scheme.

Ed Rodonets, deputy director of the Saskatchewan Financial Services Commission, the first regulator to launch the investigation into Saxon Financial Services, says a handful of the victims live in very small towns in Saskatchewan.

According to the New Brunswick Securities Commission: “Saxon has successfully solicited dozens of Canadian clients who have invested hundreds of thousands of dollars.”

“This particular activity seems to be a complex but slick Internet-based scheme that uses persistent telephone solicitation,’’ says Rick Hancox, executive director of the NBSC.

PHONE SALES

The Ontario Securities Commission enforcement branch says employees they investigated made e-mail and phone sales to Ontario residents, offering investment advice with a “personal trading professional.’’

Saxon Financial Services, which provides an address in the British Virgin Islands on its Web site but no phone number, has not returned several e-mails requesting comment on the allegations, none of which have been proven.

The OSC, which has launched a special investigation section or “boiler-room unit” to probe scams and illegal distributions, says while many companies have offshore addresses, these are usually just “virtual offices” — destinations for paperwork, which is then turned around and sent back to North America.

In fact, the boiler rooms may be operating in Canada or the U.S., where they have hired local English-speaking employees to find leads. “This new boiler-room unit that we’ve set up is dedicated just to this type of activity,” says Scott Boyle, assistant manager of investigations at the OSC. “We would see at least a couple of these in any given year.”

Boyle says the OSC in the past has taken action against illegal distributions, but is now planning to use a new fraud section in the securities act to target boiler rooms.

“We’re thinking this may be the proper use of this type of legislation,” Boyle says.

It’s common for boiler rooms to ask new clients for small amounts of money, which is then “doubled” in value. The target is then asked for more money in increasingly higher amounts, a process Boyle describes as “laddering up the victim.

“Routinely, people are losing $5,000, $15,000 or $20,000,” Boyle says. It’s also commonplace for established, respected firms to suffer when boiler rooms use names similar to real companies and their clients become confused.

Toronto-based Saxon Financial is no exception.

It began receiving complaints in February about the other company, and was quick to issue a release last month stating there is no link between the companies and noting the stop-trade order does not apply to the publicly-traded company, well-known for its conservative, prudent mutual funds.

Saxon Financial operates Saxon Funds Management Ltd. , which manages a family of mutual funds, as well as Howson Tattersall Investment Counsel Ltd. , an institutional asset management business and Howson Tattersall Private Asset Management Inc. , a private client asset management business.

SAXON RESPECTED BRAND

“The Saxon brand is both highly respected and highly credible,’’ says Allan Smith, president and CEO of Saxon Financial. “We are deeply concerned about these alleged activities by other companies, and are encouraged that regulators are taking strong measures to protect investors.’’

In contrast, the “other” Saxon allegedly had unregistered employees engaging in aggressive cold calling, promoting the sale of gasoline and currency options, followed by e-mail canvassing of potential investors, Rodonets says.

@page_break@“The representatives offer very high rates of return on investments and use high-pressure tactics,” Rodonets says.

The Saskatchewan advisor says he was duped by a skilled salesman who pitched himself as a preacher’s son who had played football at a major Ontario university. He even directed his client to look at photos and a bio of himself posted on a real university Web site.

“He showed me his photos. He said: ‘That’s my mug, just so you know.’ I was very interested in this young chap. I thought, ‘He’s on the up and up’,” the advisor says.

“He said: ‘We’re going to work with you and we’re going to make some money’,” the advisor adds.

After filling out endless forms, the advisor wired his money to an account in Geneva. “My initial plan was just to invest a small amount of money,” he says.

“They were suggesting we could make a lot of money. With every trade we were making a little bit more,” the advisor says, adding the process started to become as thrilling as gambling.

“I’ve been to Vegas. You spend $500 on a weekend. It’s entertainment value,” he says. As his account climbed, so did his confidence in the company.

“You send them $25,000 and it ends up being $40,000,” the advisor says. “They kept nibbling away at having us send more. My account was going up and up.”

But then all of a sudden, the account balance did a nosedive.

“My account went from about $150,000 to about $15,000,” the victim says, adding that he’s grateful he never referred clients or friends.

“These guys were constantly asking for referrals,” he says.

Despite the severity of the advisor’s losses, he feels great compassion for other alleged victims, including another Saskatchewan resident he heard of who had lost a significant nest egg of $60,000. IE