Boiler rooms exist all over the world… and they’re becoming more and more common. They are basically unregulated companies that sell stocks and shares. Telesalespeople from the boiler rooms cold-call potential investors and try to sell them shares. The sales people often use high-pressure tactics, and they’ll keep harassing investors until they buy. In some cases, the shares aren’t listed, so they can’t be sold on. But in other cases, the shares are completely worthless or even non-existent. The average loss for most victims is around £20,000, but some people have parted with huge sums of money. In total, boiler rooms are estimated to steal as much as £1 billion every year. “People who work in boiler rooms are prepared to target anyone, however vulnerable, and will take their last penny if they can,” a police spokesperson said.
Boiler rooms are simple to operate. Working from the share registers of legitimate quoted companies, boiler room salespeople target people who have bought shares in the past. The Financial Services Authority (FSA) and the City of London Police recently wrote to 6,500 homes to warn people that their details were on a “master list” being used by fraudsters to sell worthless shares. “Intelligence suggests that this list of people from across the UK is currently being shared among boiler rooms,” a police spokesperson said. Boiler rooms are often based abroad, so they can avoid investigation in the countries that they are targeting.
The main problem is that boiler room salespeople are very good at what they do. According to the FSA, 15% of victims are persuaded to buy shares during their first call. And nearly half of the victims agree to buy after they are called four or more times. Boiler room salesmen often won’t take no for an answer. They will constantly call a target, trying to build a relationship and get their confidence. They will appear knowledgeable and highly professional and incredibly insistent. The average targets are pursued for at least a month before finally purchasing shares, but about 25% informed the police that they received calls from the same boiler room for more than half a year. Aileen Clark was the victim of a boiler room scam. She’s a retired health worker who lost her £500,000 life savings to a sophisticated shares fraud. One day, Aileen, 64, got a call from a company using the name Mayfair Lane. “They were so plausible,” she said. First she paid £5,000 for shares that were sold to her by a nice man who claimed to be Cambridge educated. More investments followed. But one day, she was informed that the shares she’d bought should only have been sold to corporate investors, and that if she wanted to sell them on, she’d have to buy at least £1 million’s worth. Aileen refused at first, but then she was given the “good” news: she could go halves with another private investor. Eventually, she paid the £500,000 – half the “necessary” amount.
Things would have continued if it hadn’t been for one of her sons. He saw a programme on TV about boiler rooms, and told his mum to stop (at which point the fraudsters were trying to convince Elizabeth to re-mortgage her house to find the money for yet more shares). “I feel so ashamed, so stupid, but these people are so clever, so believable,” she warned. “I’m not the only idiot out there, so please warn people about this.” Eventually, the gang were caught. They were accused of stealing about £2.5 million from more than 500 investors. Led by a 51-year-old businessman, the company traded under the name Whitecard Capital.
Another share-selling scam involved two companies with offices in London and Barcelona. These companies managed to dupe £4m out of British investors. Fortunately, the money was recovered, and was distributed to the 500 or so UK investors who were persuaded to buy worthless shares between March and November 2006. The two companies, Fencemore Securities and Business Analytics, cold-called UK investors. The FSA said the company targeted investors whose names appeared on a list of individuals who had fallen for similar scams in the past.
Another case involved a company based in a Caribbean island. Sales executives at this company cold-called people and offered them shares in Safevest PLC with a promise of significant returns on their investment. But the shares proved worthless. The FSA said it had recovered about £270,000 from the fraud. “This figure is believed to be the amount invested by victims, and it will be repaid to them in full,” it added. An FSA director said, “We are extremely pleased to be able to recover and return money to investors who have been persuaded to hand over their money as part of a share fraud scam. However, such good news is rare for victims who deal with unauthorised firms, as the money usually disappears without a trace.”
These days, boiler room operatives are getting more and more sophisticated. Some masquerade as reputable FSA-registered firms. “There has been a dramatic increase in overseas fraudsters using the names, registration numbers and addresses of FSA-authorised firms and individuals,” an industry expert explained. “The criminals are also using cloned copies of legitimate companies’ websites, changing important details such as phone numbers and e-mail addresses. This means that merely checking that a firm contacting you is on the FSA register is not enough to protect you from fraudsters.”
Over the years, “There’s been an increase in the use of threats,” said a spokesperson from the Economic Crime Department. “Unscrupulous salespeople often intimidate victims by claiming that a verbal contract was made. This often works with elderly people who are frightened of the possibility of legal action if they don’t buy the shares.” Interestingly, more men than women are victims “because women ask more questions, and that poses difficulties for the perpetrators of this fraud.” So, what can you do if you suspect that the friendly person at the end of the line is working for a fraudulent company? The FSA has a number of suggestions:
Find some means of getting information about the firm. For example, have a look on the website for a switchboard number. Call the company on that number (not any number given to you by the caller) to see if the number is genuine.
In general, be suspicious of all unsolicited calls. Cold-calling for investment business is illegal, so reputable stockbrokers will not do it.
Remember, making large, sure-fire gains on the stock market is notoriously difficult. Be suspicious of any company offering something that sounds too good to be true.
Do not give out personal or financial details, or agree to anything right away, and never send money up-front. Make your own inquiries, including a check with the FSA. Do not rely on websites mentioned by the seller – they are easily faked. If you have been contacted by a suspicious firm or have any doubts, get in touch with the FSA.
Find out about the company whose shares are being offered. Is it a quoted company? Check with a local stockbroker registered in the country you are buying from. Unquoted shares are likely to be impossible to sell; even quoted shares may be thinly traded. If you do buy shares from a legitimate company, consider using a nominee account to own the shares; that way your name will not appear on the share register.
Be careful! There are a lot of bad people out there!