BOILER ROOM FRAUD, LONDON ALERT !!!!

Boiler room fraud

The National Fraud Intelligence Bureau (NFIB) within the City of London Police is responsible for co-ordinating the national intelligence picture for share purchase fraud, more commonly known as boiler room fraud: a crime where investors are cold-called by bogus stockbrokers and persuaded to either buy worthless or non-existent shares, or to buy genuine shares at vastly inflated prices.

Important update: Investors warning

It has come to the attention of the National Fraud Intelligence Bureau that fraudsters are threatening investors with police action if they refuse to go ahead with an initially agreed transaction.

We would like to assure investors that the City of London Police do not and would not act as a debt collection agency in these matters.

If you have been offered an investment and consequently received a similar threat please inform your local police force (City of London Police contact details).

Are you a victim?

If you think you may have been a victim of this type of fraud, you should report the matter to your local Police Station or to Action Fraud. Action Fraud is the UK's national fraud reporting centre and also provides support and useful advice for victims of fraud. You can report the crime online at www.actionfraud.org.uk or by telephone             0300 123 2040      .

What is boiler room fraud?

A 'boiler room' is a bogus stockbroking company, usually based overseas, which cold-calls investors and pressures them into buying worthless shares. Historically, those targeted were older people with previous experience of investments or share dealing, who typically lost £20,000 each to the fraudsters; 50% of investors today are aged over 65. The biggest individual loss to date recorded by the National Fraud Intelligence Bureau (NFIB) is £1.2 million.

In the current economic climate, boiler rooms are starting to target victims who have redundancy money or those who are not experienced investors, and are asking for smaller sums of money to invest.

 

Those operating the boiler rooms have developed new strategies to target investors, such as a promise to recover monies lost to the original boiler room, or to purchase these worthless shares (once an up-front fee has been paid). In addition, investors are being encouraged to sell previously highly regarded 'blue chip' company shares, such as banks and financial institutions and to invest in green or new technology shares marketed by the boiler rooms, or even to take out loans to fund new investments.

 

These fraudsters are usually well spoken and knowledgeable. They are also persistent. They might call their victim several times with offers of research, discounts on stocks in small overseas companies, or shares in a firm that is about to float. Boiler rooms make their money in one of two ways: by simply taking money and walking away, or selling shares at vastly inflated prices and with exorbitant dealing charges.

Police advice is not to accept cold calls, however persistent. Always seek legal and independent financial advice.

The Fraud Advisory Panel (www.fraudadvisorypanel.org, opens in a new window) have produced a leaflet (60KB, PDF)with practical advice to consider before purchasing shares, which is recommended reading.

Often, shares are offered in USA companies that have, or are about, to float on the stock market. These regularly prove to be 'Regulation S' (or Rule 144) shares, which can only be sold to non-US citizens and have other limitations. Any company offering shares in connection with the American stock exchanges should be checked at the US Securities & Exchange Commission (opens in a new window).

Scams often have similar features that may alert you to the fact that they are not genuine:

  • if it sounds too good to be true then it probably is

  • if you are asked for money up front to pay unexpected fees (such as taxes or charges) before your 'prize', 'winnings' or 'profits' can be released

  • you are asked to provide your bank account, credit card details or other sensitive personal information

  • you are put under pressure to reply immediately "or the money will be given to someone else "

  • you are asked to keep the details secret

Please remember that any company, no matter in which country they are based, must be registered with the Financial Services Authority to offer shares for sale to people living in the UK.

Recovery Room

A number of "recovery rooms" are now offering to assist those defrauded by boiler rooms. They will approach a victim of boiler room fraud and, for an upfront fee, promise to review their case and obtain reimbursement from a European Court fund or other legal avenue. Fees are often taken over the telephone by credit card payment or through PayPal, and it is thought that the recovery rooms purchase names of victims from the boiler rooms themselves.

Recently, recovery rooms have stated that they are working either on behalf of, or in conjunction with, the National Fraud Intelligence Bureau (NFIB), the UK Financial Services Authority or the US Securities & Exchange Commission, in an attempt to give validity to their scam. It has also been suggested that the ‘fund’ the recovery room seeks reimbursement from are monies that the Police have restrained and failed to return to the original investors.

 

the National Fraud Intelligence Bureau (NFIB) does not work in conjunction with, or endorse, any financial companies, legal firms or other organisations to return recovered funds or represent investors, with the exception of the Financial Services Authority. Any funds that are recovered during an investigation are repatriated to investors under the Proceeds of Crime Act and every attempt is made to identify investors to benefit from such funds.

What does the National Fraud Intelligence Bureau (NFIB) do?

Police are only one of several agencies investigating mass-marketing fraud, including the Financial Services Authority; Trading Standards services; the Office of Fair Trading and the Serious Organised Crime Agency in the UK, as well as overseas law enforcement and regulatory organisations.

the National Fraud Intelligence Bureau (NFIB) assists in co-ordinating the efforts of these agencies in the UK and overseas; by collecting, analysing and disseminating boiler room fraud intelligence; and supports criminal investigations. Each UK police force is responsible for investigating reports of boiler room crime in their police area, and the National Fraud Intelligence Bureau (NFIB) assists by putting investigators and victims in touch with each other, and by providing information packages on individual boiler rooms to investigators.

During an investigation, each piece of information is followed up, including telephone numbers, bank accounts, physical addresses and Internet addresses. Often, fraudsters make use of serviced or virtual offices to provide a prestige address; call forwarding services to hide their true locations; or indeed simply make up an address with which they have no connection, to lend an air of authenticity to their operation.

the National Fraud Intelligence Bureau (NFIB) does not receive routine notifications of arrests or boiler room investigations, and legal procedure rules often prevent police from publicising the arrest of criminals until after any trial is concluded; fraud investigations are typically lengthy and can take several years to reach a conclusion.

Is any money recovered?

It is rare that monies paid to boiler rooms are recovered. However, there are occasions where accounts are frozen in the UK or overseas, from which victims of that particular boiler room can be compensated. However, this requires a series of court applications, although new legislation is now in place to make it easier for police to recover monies frozen overseas.

Equally, when a fraudster is convicted, typically a confiscation case will take place, under the Proceeds of Crime Act (2002), to try and recover funds obtained through crime from the criminal.

The Financial Services Authority (FSA)

The Financial Services Authority (FSA) regulates the activity of companies operating in the UK financial sector, including banks, stockbrokers, financial advisors, spread-betting agents and so on. The FSA recommends checking its website (www.fsa.gov.uk) both for a list of boiler rooms and to find out if the stockbroker is authorised to operate in the UK. The FSA is unable to take action if the boiler room is not based or authorised in Britain, so investors are vulnerable as they will not be able to claim compensation from the FSA or the Financial Ombudsman Service if something goes wrong.

Other useful links at the FSA website:

 

  • Money made clear (opens in a new window)Contains general consumer information, such us 'staying safe' guides and boiler room information

  • Unauthorised overseas firms operating in the UK (opens in a new window)List of names of unauthorised overseas firms targeting UK investors

  • Share scams (opens in a new window)Advice on share scams, also known as boiler room scams

  • On the phone (opens in a new window)How to protect yourself from unsolicited or cold callers

The Securities & Exchange Commission (SEC)

The SEC is the American equivalent of the Financial Services Authority and has a similar remit. If you are considering buying, any US shares, please use the extensive resources available at the SEC to research the company before purchasing.

Useful SEC website links:

  • 'Check the Broker' service (opens in a new window)

  • Investor Information pages (opens in a new window)

  • List of unregistered soliciting entities (opens in a new window) that have been the subject of investor complaints

  • List of fictitious governmental agencies and international organizations (opens in a new window) associated with soliciting entities

What about other marketing frauds?

There are many types of mass-marketing frauds; however, the National Fraud Intelligence Bureau (NFIB) only deals with share-related frauds. Other forms of this crime include:

  • International lottery wins

  • Romance invitations

  • Clairvoyance

  • Land, wine or ticket sales

  • Counterfeit cheques/postal orders

  • Miracle cure/ weight-loss programmes

Where a crime has occurred, you are advised to report it to your local Police force or Trading Standards team; alternatively, the Consumer Direct helpline will take a report and pass it on to the relevant team:

 

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