Share sale fraud - more commonly known as boiler room scams - are on the increase. Given the current economic climate, such scams could claim more victims than before, especially as they claim to offer you a better return on your money than simply depositing it in a savings account.
The majority of share sale fraud/boiler room victims are experienced investors, with 41% having been investing for over 11 years. According to The Financial Services Authority (FSA), an estimated £200-£500 million is defrauded from UK victims each year.
The threat
- Boiler room/share sale frauds use ‘hard sell’ tactics to persuade investors to buy shares which are of little or no value.
- Not only will you find it difficult to get evidence or confirmation from the firm about what shares you hold, but it’ll be even more difficult to sell them when you want to.
- If you deal with a share sale fraudster or boiler room you’ll almost certainly lose the money you’ve invested. You won’t have a right to complain or claim compensation in the UK, as despite what the caller tells you, boiler room scams tend to be based overseas and therefore will not be authorised by the FSA to do business in the UK.
REMEMBER: IF IT SOUNDS TOO GOOD TO BE TRUE, IT PROBABLY IS!
What to look out for
- Most commonly, you’ll be approached by ‘cold calling’, so if a stranger rings you out of the blue and tries to sell you shares in companies you've never heard of, you should take great care.
- You could also be approached via e-mail, post, or through online advertisements. For instance, you might be offered a free research report into a company in which you hold shares, or a free gift or discount on their dealing charges.
- After the initial approach, you’ll receive a call from a well-trained, highly professional sounding salesperson. They can be persistent, often calling every day until they finally make a sale or you hang up. They often follow a script so will be able to answer any questions you ask or fend off your objections – they don’t take ‘no’ for an answer!
- In order to appear authentic, callers will often claim to be from legitimate firms and have websites which look professional.
- You may be told that you’ve already entered into a contract to buy the shares and are therefore under an obligation to pay. This is not true as under UK law such contracts are unenforceable.
- As most boiler rooms are based overseas you will be asked to send your “investment” by International Payment. Common destinations are Spain and United States, although Dubai is also becoming increasingly popular. To avoid raising suspicion with your bank, you could also be asked to send payment via Western Union or to an intermediary in the UK before the funds are moved offshore.
What to do if you are approached
The FSA has published a list on their website of firms known to be operating in this way. However, remember that this type of firm is likely to change its name frequently, so if you can’t find a particular name on these lists that still doesn’t mean it’s genuine.
Here are some tips on how you can protect yourself:
- Before you hand over any money, always make sure that the firm you use is on the FSA Register and is allowed to give financial advice. If they aren’t regulated by the FSA and things go wrong, you won't have access to complaints and compensation procedures. To find out if a firm is registered visit the FSA website.
- Some callers may use the names of firms or individuals from the FSA Register to make you think they are legitimate. Don’t just assume that because their name appears on the register they are who they say they are.
- If you are in any doubt, check the caller’s identity with the firm they claim to work for using the FSA Register. REMEMBER – if the call is genuine a trustworthy firm won't mind you being careful.
- Do your own checks - try to check the current price in the financial press or with a broker. You could also do your own research before buying, such as looking on the company’s website if they have one, getting a copy of the annual report and/or reading the financial press.
Useful contacts/links
- FSA Consumer Helpline – to check a firm is authorised or to report a share
sale fraud. Tel: 0845 606 1234* Minicom/Textphone: 08457 300 104* (*call rates may vary) - APCIMS (the Association of Private Client Investment Managers and Stockbrokers) for a list of its member firms, all of which are FSA authorised. See www.apcims.co.uk and click on Find a Broker. Tel: 020 7448 7100
- FSA register - to check a firm is authorised.
- List of unauthorised overseas firms.
- Unauthorised firms reporting form.
