Stay safe from sophisticated share scams
If you were to receive a call out of the blue from a firm offering to sell you shares in a company, would you be tempted?
Some people would instantly smell a rat – but many others end up handing over money under the misguided belief that the shares will deliver a bumper return.
Last year the City of London Police received an average of 100 new calls a week relating to boiler room fraud, with victims losing anything from £3,000 to £1 million. The Financial Services Authority (FSA), meanwhile, is contacted by around 3,000 people each year.
However, it is feared that this is just the tip of the iceberg, as many victims don’t report the crime.
In fact, the FSA believes just 10% of high-value fraud victims report the crime - this indicates that there are perhaps around 30,000 victims in the UK each year.
What is a boiler-room scam?
Boiler room scams are, in essence, share scams. The con works by selling investors worthless shares, often at inflated prices, that are impossible to sell. In some cases the individual selling the shares will tell victims that the company in question is due to become listed. Sometimes, however, the company doesn’t even exist.
Unless you’ve ever been targeted by a boiler room scam it can be hard to understand why people fall victim,
According to the FSA, victims of this crime tend to trust professionals, and so fall for the promises made by the bogus callers. They are also often elderly and vulnerable.
At the same time, the fraudsters carrying out these crimes are clever and highly persistent – by continually harassing people into buying shares they are able to make a healthy profit, without much concern for those they leave in their wake.
These conmen know people they call may well be skeptical about the promise of big returns. They therefore ensure their story is extremely plausible. They take the time to nurture a relationship with victims, which has the added bonus of making them appear professional.
In other cases, victims are stirred into a state of panic after being told they must invest quickly or risk losing out. The price could rise, they are told, or is only being offered at a ‘discount’ today.
The claims are often pretty impressive. Some victims report being told they could double or even triple their investment in a very short period of time.
One ploy often used to convince victims is developing a highly professional website. This adds colour to the whole operation, and suggests that the investor is buying into something tangible – rather than worthless shares.
Companies will usually claim to be based in one of the world’s leading financial powerhouses - London, New York, Zurich or Hong Kong for example. Their website will position them as a serious and high-powered company. Names also tend to be grand sounding.
Boiler room scams also use third party providers to lend an air of legitimacy - for example, mail forwarding and telephony services. The FSA says firms have an arrangement in place for mail to be delivered to a fashionable business address, where it is then forwarded on to them at another location. They may also pay for someone to answer the telephone for them.
Scammers have also been known to stage "shareholder meetings" in large reputable hotels in cities such as London or Edinburgh. They also use British bank accounts to make the transactions seem more credible.
Another disturbing tactic scammers use is circulating what are know as a ‘sucker’s list’. This normally contains the names and addresses of people who are believed to be ‘ripe’ for a scam.
Often those on the list have already fallen victim. And instead of being put off by their experiences, they may be more likely to invest – perhaps to make up their losses or because they are in denial that they fell for a scam in the first place.
Scammers often doubly cross their victims using a ploy known as the ‘recovery room’. This involves them calling up someone who recently bought into a boiler room and offering to buy back the shares at a high price.
Victims who believed the shares to be worthless are in many cases so relieved to have been offered a way out that they will do anything – even send the said scammer a large arrangement fee first.
How to check up on a boiler room scam
Any UK-based company that claims to be selling shares must, by law, be registered with the FSA.
Many boiler room scams use fake FSA numbers on their websites so check whether a company is legitimate or not by checking the FSA’s register yourself.
If the firm is not registered with the FSA, or does not have the authority to sell shares and investments, then do not touch it with a barge pole. Non-FSA registered firms are not covered by the Financial Services Compensation Scheme and you won’t have access to complaints or compensation procedures.
Boiler room scams tend to be based overseas, so they may justify being non-FSA authorised by claiming to be covered by regulations in a different country. However, bear in mind that you are highly unlikely to be covered by any compensation schemes – so it’s probably not worth taking the risk.
However there has been a dramatic rise in the number of boiler room scams cloning the name, FSA number and even website of authorised firms.
Don't just assume that because a firm’s name appears on the FSA’s register that it is who it says it is.
Jonathan Phelan, head of the FSA’s unauthorised business department, says: “It is encouraging that awareness of share scams is now so high that conmen are having to come up with new tactics as it shows our strategy is working. Sadly, however, this also means there is a renewed risk to investors and a new type of scam for us to tackle."
If in doubt ask for the contact details of the person calling you, and check these with the firm they claim to work for. Make sure you use the contact details for the legitimate firm listed on the FSA’s register to do this.
Phelan adds: "If in doubt, make a report to the FSA - the more information we receive on a firm, the better placed we are to shut them down.”
Don't listen to excuses about giving out names or even a direct line – if the call is genuine a trustworthy firm won't mind you being careful.
The FSA keeps a list of known current boiler schemes – you can search this online or call its consumer hotline on 0845 606 1234.
A careful google search of a firm is likely to also return result – many people name and shame boiler room scams in forums on websites such as Moneywise, so it’s worth checking these threads out to see if the firm calling you has been encountered by others.
Other ways to stay safe
If you are called up out of the blue and offered the opportunity to buy shares the smartest thing you can do is hang up. Cold-calls are not a selling tactic used by reputable company, and nearly always indicate that things are not all they seem.
It is also illegal for UK investment firms to cold-call potential customers. It might be worth protecting yourself from all cold-callers by registering with the TPS – for free – either online or by calling it on 0845 070 0707.
Ignore any exciting claims the boiler room makes about these shares – they are nearly always too good to be true. Stop, think and be skeptical - if something sounds too good to be true, it probably is.
Make sure you report any suspected boiler room scams – contact the FSA on 020 7066 1000 and City of London Police on 0845 602 2185.
If you have fallen for a scam, then you can get help from Victim Support in complete confidence on 0845 30 30 900 (England and Wales) or 0845 603 9213 (in Scotland).
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.
A charge some brokers (and, increasingly, lenders) make for arranging your loan or mortgage, either as a flat fee or a percentage of the amount you wish to borrow. In order to look ultra-competitive in the best-buy tables, some mortgage lenders will offer mortgages with an attractive low rate and recoup any losses with a hefty arrangement fee.