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When something sounds too good to be true: Boiler room scams

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19/07/2012
Every year £200m is lost to share scams run by boiler room fraudsters. These scam artists cold-call investors offering them worthless, overpriced or even non-existent shares.

When you think of investment scams, you may well think of the BBC’s series Hustle.

Master conman Mickey ‘Bricks’ Stone (Adrian Lester) and his team of highly skilled, and extremely good-looking accomplices targeting London’s rich and greedy.

Almost like a squad of selfish Robin Hoods: they’ll steal from the greediest among the rich, but never quite go as far as to hand it out amongst the poor.

Real life of course is rarely so glamorous. While Micky and his band of merry men roam about in the swankiest of the Big Smoke’s offerings, most investment scams in reality rarely afford the same elaborate scheming, and real life crims rarely care whether the conned is good of heart or otherwise.

In the past week, five men behind a multi-million pound boiler room scam were put away for 20 years between them, for a litany of investment related scams.

The gang ran an operation that targeted at least 600 investors out of approximately £5m.

How did these fraudsters pull it off? Investors were told the companies were about to float on the stock market, guaranteeing them a substantial return on their money.

Victims then received a contract note, detailing the number and price of shares they had agreed to purchase and information about how they should make their payment. Once the money had been transferred all communication ended.

One investor was directly approached at Lords cricket ground, the gang managing to get away with £1m of his savings.

This investor even had the leisure of having the fraudsters going as far as collecting the cheques from him in person. What service!

As the recession takes further grip on our economy, more and more investors are desperately seeking out investments that will buck trends and give them fantastic returns.

Unfortunately these plans tend to be run by conmen looking to take more than their fair share than the commission from giving you that ‘need to know’ info.

Some fraudsters use the internet to flog worthless shares, others to offer dodgy perfume, and then there are those who sell helicopters that simply don’t exist.

Having seen a helicopter for sale on a website, one victim contacted the listed seller and agreed to pay a £58,856 deposit into a nominated bank account to secure the purchase of the machine.

When the seller mysteriously dropped all communication, the victim cottoned on to something being amiss. Luckily for this chap, he managed to get his money back, but catching the fraudsters is an exception rather than norm.

Adrian Hood, regulation advisor at IMA, said: “The FSA have a register of authorised firms, if a company’s name isn’t on this list investors need to take caution. It is a good idea to call companies using an independently sourced number to check their authenticity.

 

Hood continued: “Similarly, genuine investment companies rarely call you with ‘opportunities’ – it isn’t the way the system works.

If investors receive an email or a phone call, out of the blue, asking them to make an investment, it should be treated as highly suspicious. Remember, if it sounds too good to be true, it probably is.”

And that caution needs to be heeded. If it does sound too good to be true then there is a high chance that it is.

The FSA warns that share fraudsters increasingly clone genuine authorised firms or individuals to appear more credible, and the statistics support that trend.

In 2011, there were 449 reports made about a number of cloned firms – almost three times as many as the year before when 161 reports were made to the FSA.

Hood added: “Unfortunately, as the FSA and the industry become more sophisticated in identifying fraud, so do the methods used by those conducting it. Boiler room scams do occur, whereby real regulated firms and individuals are impersonated.”

In 2011 the Financial Services Authority (FSA) saw a 19% increase in enquiries about share fraud, commonly known as ‘boiler room’ fraud, with 5,401 reports made compared to 4,527 in 2010.

However, despite the increase there was a 7% drop in 2011 (from 831 to 770) in the number of people who having been contacted by a boiler room, then invested.

Boiler room scams top the board of scams most loved by fraudsters, followed by land banking and Ponzi, or get-rich-quick schemes. Land banking scams are when small plots of agricultural land are advertised on the internet or over the phone as investment opportunities, and yes you guessed it – are not.

Share fraudsters, commonly known as ‘boiler rooms’, usually contact people by telephone and use high pressure sales tactics to con investors into buying non-tradable, overpriced or even non-existent shares.

Boiler rooms are unauthorised, overseas-based companies with bogus UK addresses and phone lines routed abroad.

But while bogus companies usually ask investors to transfer money overseas, there is a growing number of boiler rooms asking victims to transfer money to UK-based bank accounts

 

Unauthorised firms are not covered by the Financial Services Compensation Scheme therefore should an investor fall victim to an unauthorised business, it is highly likely they will lose their money if the firm goes bust or disappears with the funds.

Jonathan Phelan, the FSA’s head of unauthorised business, said: “We will continue to fight all forms of unauthorised business but the strongest weapon against scams remains common sense and a little bit of homework: check who you are dealing with and never forget that if it sounds too good to be true – it probably is.”

Should anybody receive an unsolicited call or email from a firm offering to buy or sell shares, the FSA recommends taking the following steps:
Ask for the contact details of the person calling you.

Check the firm or individual’s status on the FSA register. Search the FSA’s list of unauthorised UK firms and individuals to avoid doing business with, although keep in mind that their names are likely to change regularly.

Check the FSA’s ‘warning list’ to see if the firm is a known boiler room. The FSA has a list of unauthorised overseas firms that they have received complaints about and some warnings issued by foreign regulatory authorities about firms conducting unauthorised business

Call the firm back on the switchboard number provided on the FSA Register to make sure that the call came from the legitimate authorised firm;

Make as many other enquiries as possible to establish the firm’s validity.
If you do decide to buy the shares being offered check the current price (in the financial media or with a broker) as the firms may be buying shares from other brokers and offering them above the market price.

Do your own homework before buying – look at the company’s website and annual report, and read the financial press.

And finally, if in doubt – contact the FSA.

Oh and whatever you do, make sure no money exchanges hands.

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