If share deal seems too good to be true, it probably is
Boiler room fraudsters targeting unwary UK investors
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Boiler rooms are a very hot topic, but many private investors are still unaware of their existence.
What are they? The phrase boiler room dates from 1930s America when con artists set up so-called “investment” operations in the basements of office buildings.
With a couple of phones and a smart address in the financial district of the city, investors would assume that they were dealing with respectable organisations.
Modern-day boiler rooms are largely unchanged, apart from the fraudsters now casting a much wider net and operating from many locations worldwide.
What is their purpose?
To defraud investors by generally enticing them to part with their savings to purchase non-existent worthless investments.
Some may even actually allow you to “win” in the early stages of building a relationship, thereby tempting you to eventually commit to a much larger investment.
While their methods and techniques are constantly changing, their ultimate aim and mode of operation is theft by deception.
How do you identify a boiler room?
You will typically be phoned out of the blue by intelligent, well-educated people who are likely to flatter you, offering you a lucrative investment opportunity.
They are expert salesmen who will persistently and persuasively pursue you.
They may call you a number of times, gradually gaining your confidence and forging a relationship until such a time as you trust them and agree to part with your money. While generally smooth talkers, they may become aggressive and start to bully you when they encounter resistance. Not letting go is their policy.
Are they legal?
No. Boiler rooms are not authorised by the Financial Services Authority (FSA) and they act illegally. The FSA maintains a list of known, unauthorised firms on its website where you can check out uncertain firms.
How do the scams work?
A common method is to persuade you to buy dud shares.
The fraudsters will generally produce supporting paperwork, including contract notes and authentic-looking share certificates.
Impressive, yet fraudulent websites are often created providing hypothetical information on the broking firm they purport to be or the company into which you have invested.
You are lulled into believing you hold shares in a genuine trading company listed on a major stock exchange.
The harsh reality is that the company will not be listed on any stock exchange as it simply does not exist or is a shell with no trading activity.
You are conned into handing over your savings in return for a worthless piece of paper.
Other examples involve transactions in overpriced shares or shares restricted for onward sale with little or no realisable value.
Others involve the purchase of shares in “common name” companies.
You believe you are buying a blue-chip company but instead you are buying a similar but non-existent name. Being told you own shares in company “X”, but being asked for money up front to cover the selling costs to release your proceeds is another new angle.
Fraudsters are also trying to associate themselves with UK firms to look bona fide.
How do the fraudsters know you?
If you own/have owned paper share certificates, your personal details will have been listed on the company share register: a public source of data fraudsters use.
There are also other accessible database sources upon which fraudsters can obtain contact details.
If you are contacted:
How to protect yourself in future?
The best self-protection is to do your investment dealings through an FSA authorised stockbroker.
Also, hold your shares in a nominee account with your stockbroker; you become anonymous on the share register which should stop many of the unsolicited calls.
Most importantly, if it sounds too good to be true it probably is so avoid it.
Sandy Glen is with stockbroker Redmayne-Bentley in Nairn and can be contacted on 01667 455577
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