Options Scam In Boston
Where is "James Carr"?
To his neighbors, James A. Carr seemed a solid citizen. He was the smooth-talking president of Boston-based Lloyd, Carr & Co., which billed itself as the nation's largest firm in the arcane field of commodity options, and in less than two years had spawned twelve offices, reaching west to San Francisco. He lived in a $200,000 harborside house, drove his wife and three daughters around in a Rolls-Royce, and gave sage interviews to Boston newspapers. Last week he appeared to have also been the author of one of the biggest frauds to surface in years.
Carr was arrested in Boston on charges that he had failed to obey an order by a Michigan federal court to cease violating securities laws. After Carr was released on $100,000 bail, authorities believe, he fled to Bermuda or the Cayman islands. An FBI fingerprint check revealed that "James Carr" was really one Alan Abrahams, an escaped convict with a 22-year criminal record, who in 1974 had fled a New Jersey prison farm, where he was serving a sentence for a commodities scam. Officials say that Lloyd, Carr may have swindled investors out of as much as $75 million over the past 18 months. Investigators found that one escrow account in a Boston bank supposed to contain $3.6 million to safeguard clients' funds contained only $200. Massachusetts authorities believe the total siphoned off in their state alone could reach $12 million.
Abrahams had no difficulty slipping through a superficial SEC and FBI name check in 1977 and getting a license as a commodity trading adviser from the Commodities Future Trading Commission, the federal agency created in 1974 to regulate the industry. He set up Lloyd, Carr in mid-1976 to specialize in the most speculative of all investments: options in futures of such items as coffee, sugar, cocoa and copper, which are traded on the London commodities market.
Clients would pay Lloyd, Carr large sums to purchase rights either to buy or sell a "commodity futures contract" maturing at some given date in the future. Trading in U.S. commodity futures options has been banned in America since 1936, but dealers can offer options based on the London market. Carr's firm did this and prospered; it grew to employ 1,000 salesmen, and got the blessings of the Boston Better Business Bureau as well as a Dun & Bradstreet "triple A" credit rating.
According to evidence gathered by officials of several states, the firm used high-pressure telephone sales tactics. During one 30-day period, the Detroit office made more than 50,000 long-distance calls; prospects were harassed with what Noel Fox, a Detroit federal judge, called "unrestrained and unambiguous predictions of certain or enormous profits." Salesmen were driven hard: sometimes, men wearing gorilla and Superman suits pranced around urging them to boost orders.
Judge Fox cited one deal in which a customer was billed $8,000 for an option that was being sold for $2,500 by other firms. Indeed, investigators wonder whether the firm ever made any of the options purchases that it claimed to. Two of the three London-licensed traders that Lloyd, Carr supposedly used as brokers deny ever having had dealings with the firm; the third, based in Bermuda, turns out to be owned by Carr.
Last week a federal judge in Massachusetts ordered the firm to cease operating and placed it in receivership. Many questions remain as to why the regulators did not investigate and act sooner. Although the CFTC denied the firm registration, Lloyd, Carr continued its operations for several months while challenging a shutdown order. Criminal fraud was never an issue during that period. However, some critics maintain that the CFTC withheld evidence that hampered state investigations. At week's end the only response from embarrassed CFTC officials was that they were not changing operational methods. As for the elusive Abrahams: Criminal Lawyer F. Lee Bailey said that he would appear to answer the charges against him.
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