'Boiler room' scam warning
Shareholders of Octopus Investments venture capital trusts have been warned against a third party using its name in part of an illegal ‘boiler room’ scam.
The company says it believes its shareholders have been contacted with offers of shares in high-risk and even fictitious companies.
Typically, shareholders receive an unsolicited phone call concerning their investments, usually from overseas-based brokers, offering to sell them risky or worthless shares in UK or US investments. These operations are known as ‘boiler room’ scams.
The Financial Services Authority says this is not uncommon and several VCT companies have been targeted.
A spokeswoman for Octopus says unfortunately these type of scams happen across the VCT market and although Octopus is keen to be "straightforward and provide customers with as much information as we can", it’s sometimes impossible to know the numbers affected as victims can be unaware they’ve been scammed.
The FSA issued guidelines in May for shareholders and most VCT providers, including Hargreave Hale, Matrix and Albion VCT, have notices on their websites with instructions on what to do if shareholders have been a victim to such a scam.
The FSA warns that brokers involved with the scams can be very persuasive and aggressive. A 2006 survey found the average amount lost by investors is £20,000 and the regulator warns: ‘It is not just the novice investor that has been duped in this way; many of the victims had been successfully investing for several years’.
There is a list of unauthorised firms to be wary of on the FSA website. If you deal with them and do fall victim to a scam, you will not be able to benefit from the Financial Services Compensation Scheme and could have no way of regaining your money.
Venture Capital Trusts were introduced in 1995 to encourage private investments in the small-company sector by offering tax relief in return for a minimum investment commitment of five years. A VCT is a company, run by a fund manager, which invests in other companies with assets of no more than £7m that are unlisted (not quoted on a recognised stock exchange) but may be listed on the Alternative Investment Market (AIM) or plus with the aim of growing the companies and selling them or launching them on the stock market. Investors in new VCTs are offered desirable tax advantages and VCTs themselves are listed on the London Stock Exchange, with strict limits laid down by HM Revenue and Customs on what they can invest in and how much they can invest.
The Financial Services Authority is an independent non-governmental body, given a wide range of rule-making, investigatory and enforcement powers in order to meet its four statutory objectives: market confidence (maintaining confidence in the UK financial system), financial stability, consumer protection and the reduction of financial crime. The FSA receives no government funding and is funded entirely by the firms it regulates, but is accountable to the Treasury and, ultimately, parliament.
This is an umbrella term for an organisation, usually unlicensed by the financial authorities, which uses forceful, persistent and highly aggressive telephone sales techniques to sell unlisted or non-existent securities to private investors. In the majority of cases, the shares being sold are worthless and the boiler room vanishes, leaving the investor out of pocket. Although they boast impressive UK addresses, the firms operate from boiler room “hotspots”, such as Spain, Switzerland, Dubai, Japan, Bermuda or the US, so they are outside the remit of the Financial Services Authority.