Boiler Room Guidance

Last week, three people were jailed for their part in a boiler room scam dating back to 2007
http://www.fsa.gov.uk/pages/Library/Communication/PR/2011/073.shtml

I thought it worth reminding clients that as part of our service Green Financial have long offered: “The Second Opinion Service” – this is where we make ourselves available to consider new ideas, wherever they may originate from

Over the years clients have utilised this service in many ways, from having us check the ‘small print’ on accounts offered by banks (we’ve helped clients avoid tie-ins, falling rates and hidden high charges)

Other times clients may have read in the press of an investment fund and want to know if we are aware of it and have considered it (usually the answer is yes)

TOO GOOD TO BE TRUE

More often than not it is a client’s friend or colleague who has heard of a tax wheeze, scheme or investment that seems too good to be true (and it usually is!)

One such example was a client who called up recently informing us of a ‘share opportunity’ they had been telephoned about out of the blue. They were wary and my alarm bell immediately rang. A little swift research on my part indicated the company offering the shares were not FSA (Financial Services Authority) registered and that the company appeared to only have a PO Box communication address. I warned the client off the venture and they agreed. When the company called back, the client told them they had discussed the matter with their IFA, did not wish to hear from them again, and if they did call back would pass their details to me and the FSA to deal with. There were no further calls.

BOILER ROOMS

As mentioned at the start of this post, three people were jailed last week, for a total of 19 years for a £27.5m boiler room scam.

Tomas Wilmot was sentenced to nine years in prison while his sons Kevin and Christopher were given five years each.

The trio were convicted of conspiracy to defraud. The Wilmots had a syndicate of boiler rooms that defrauded around 1,700 investors out of a total of £27.5m. Like so many boiler room scams of the past, many of the victims were elderly and often suffering from serious illness.

SO WHAT IS A BOILER ROOM?

As with the Wilmots, a boiler room is typically a ‘fly by night’ business but these days are usually well organised, well funded and seem plausible. They typically use high pressure sales techniques to sell ‘sure-thing’ (in my language, too good to be true) investments with a promise of massive returns. What they are normally selling is either worthless stock in unquoted companies or often stock in companies that don’t exist at all.

The more complex boiler rooms, rather than lasting for a while, then suddenly disappearing (only for the same people to pop up elsewhere under a different name) sometimes migrate to actually giving back a few returns initially, thus lulling the purchaser into a falso sense of security. These are then known as ‘Ponzi’ schemes , made more famous recently by Bernie Madoff.

HOW DO THEY WORK?

It is normally a telephone ‘cold-call’, using phone numbers easily obtainable from publicly available lists. Think how often you are asked for your details and how many organisations have your number. The UK actually has laws against this type of cold calling but it doesn’t stop the fraudsters. They simply base the callers abroad. It could be as near as mainland Spain, continental Europe, the US and even as far afield as India these days. This means they are beyond the jurisdiction of the FSA and can approach, anyone, anywhere, anytime.

Boiler rooms look and sound genuine. As I’ve already said they can seem perfectly legitimate and have many ways of putting this across. They may name drop companies you have heard of, have a genuine looking UK address or phone number and of course a professional looking website. The sales staff are VERY persistent and may continue to call for months in the hope of wearing down the recipient or catching them off guard.

Even those that consider themselves experienced investors may get caught out.

The FSA say that they reckon the average victim of a boiler room scam loses £20,000

I’ve said it before and I’ll say it again, if it seems to good to be true, it probably is.

WHAT IF YOU ARE CONTACTED?

If you are a client of Green Financial and you are ever approached, remember to take advantage of The Second Opinion Service before committing.

The FSA say if anyone ever telephones you univited offering shares for sale, don’t worry about being polite or offending the caller, just hang up.

You can also call the FSA on 0845 606 1234

The FSA also have more information on their website :
http://www.fsa.gov.uk/Pages/consumerinformation/scamsandswindles/investment_scams/boiler_room/index.shtml