Redmayne-Bentley Investment Column: The vultures are circling – how to protect yourself from investment scams
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MODERN-day investment vultures are sophisticated. They prey on greed and feed off desperation; they masquerade as well known names, but turn to dust when you try to find them; they are persistent and ruthless with one goal in mind – to part you from your money. Share scams, or boiler rooms as they are more commonly known, cost UK investors £23.5 million in the 2010/11 financial year according to actionfraud, the UK’s national fraud reporting centre. The average loss was £122,000, with the highest reported loss being a whopping £8 million. At its simplest level a boiler room scam will use high pressure sales tactics to get you to buy shares that are at best practically worthless and at worst never even existed. More sophisticated scams use a share register (a publicly available document) to contact shareholders in order to promote a piece of ‘research’ on the shares which will be accompanied by a recommendation to buy or sell. The trouble is they play both sides and so are guaranteed to have a group of people who are pleased with the recommendation whether the stock goes up or down. This group is then given another recommendation and another…until the fraudsters go in for the kill with a recommendation to buy a worthless company that has the most ‘amazing prospects’ and push for a very large amount to be invested. Not content with robbing people of their life savings, the fraudsters do not always stop there. The ‘recovery fraud’ targets those who have already lost money promising to get their money back for payment of a fee. The fee is paid, the money never materialises. In all these cases the boiler room may appear to be UK based, using Freepost addresses, UK telephone numbers and with professional looking websites. However, the Freepost address will hide the fact that they are based offshore, the phone number will forward on and the websites are often mirror images of those built for professional firms, but with a different phone number and fractionally different web address. Because they are based offshore any losses are not covered by the Financial Services Compensation Scheme and the chances of recovering any of the funds lost are practically zero. There are a variety of ways to protect yourself at each stage of the process. Firstly, minimise the chance of your name being passed on to a boiler room via a shareholder register by holding your shares electronically in a nominee name via a stockbroker. Do not sign up to any service by signing documents and returning them without checking first whether the firm is registered with the Financial Services Authority (FSA). The FSA maintains a list not only of regulated firms, but also those firms known to be operating boiler room operations – go to www.fsa.gov.uk and visit the consumer information pages. If you are targeted hang up, hang up and hang up again. Persistence is the hallmark of a boiler room operation and simply saying you are not interested will not be sufficient to dissuade them from calling you again and again until you give in simply to make them leave you alone. If you are tempted check with a reputable broker whether they have ever heard of the shares being marketed to you and see what their opinion is on them. If you are unfortunate enough to lose money then firstly you must accept that, or else you risk falling prey to a recovery scam. Beyond that you should report the fraud. Although recovery of any money lost is unlikely even if it is reported the operations can be closed down and you might save someone else the pain. Above all, take a reality check. Boiler rooms rely on greed to win but if something sounds too good to be true then it probably is! If you think you or someone you know may have been subject to a boiler room scam and would like us to check on the shares you have bought, or would like details on our nominee service in order to protect yourself please email investment.support@redmayne.co.uk and quote TheBusinessDesk. More articles in
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