14th March 2008
APCIMS' Guide to spotting the Boiler Room
APCIMS is very concerned about the recent media reports of intensive and widespread boiler room activity which has led to substantial financial losses by many British residents, especially the elderly.
APCIMS is pleased with the FSA's success earlier this month in pursuing a boiler room case, together with their Canadian regulatory colleagues, and helping investors to reclaim over £1 million of assets lost through an illegal share sale. But this was the tip of an iceberg and, by the FSA's own admission, it is very rare for the money stolen in such cases to be returned to its owners. A current court case in Florida, arising from work done initially by the City of London police, estimates that over 15,000 people have been scammed for £34.5 million. Many of these are in the UK.
APCIMS believes that it is vital for the general public to understand the nature and frequency of boiler room activity, and how to spot it and resist it. There are several ways of spotting a boiler room and resisting the temptations of the promised eye-watering but artificial returns. Here are a few.
What is a Boiler Room Operation?
They are financial operations that reach the individual in the UK mainly in the form of high pressure telephone selling of shares.
Are the shares valid?
Generally not; they are usually overpriced, restricted for onward sale, and with little or no realisable value; the company they relate to may be registered but often as a brass plate organisation with no business activity.
If I buy them, who gets the money?
The people operating the boiler room, one of whom will be the person who makes the telephone call to your house.
How do they know about me?
There are all sorts of easily accessible databases on which individuals and their telephone numbers appear.
Where are the Boiler Rooms?
They are almost always based outside the UK. If they are found in the UK the FSA will be able to take direct action to shut them down.
Are they Legal?
No. Boiler Rooms are not authorised by the FSA and act illegally by promoting and selling shares in the UK while unauthorised.
Can I get compensation if I lose my money to a Boiler Room?
Not through the normal routes. Compensation from the Financial Services Compensation Scheme can only be claimed by defrauded investors in the UK if the investment sale was carried out by a UK authorised firm. In rare cases the FSA might be able to win back your money through regulatory channels, but usually boiler rooms are structured to prevent this and the money just disappears.
What should I do if a Boiler Room calls me?
If you receive an unexpected high-pressure telephone call advocating purchase of shares in a specific company or unusual economic sector and promising exceptional returns, such as 40%, do not say "Yes". Ask if the operation is authorised by the FSA. Ask for the caller's name and company name and telephone number and where they are located. Write down whatever information you get and hang up the phone even if the other person is in mid-sentence. If he immediately calls you back and tries to carry on where he left off, hang up again. Not letting go is a typical boiler room ploy.
What should I do with the information?
Report it to the FSA via their website where there is a form for the purpose, or call the FSA consumer contact centre on 0845 606 1234. If you are in doubt, check with the FSA whether the firm is authorised or on the FSA list of 'known unauthorised firms'.
How can I avoid this in future?
The best self-protection against a boiler room operation is to do your investment dealings through an FSA authorised stockbroker. There is a list of such bona fides UK firms on the APCIMS website at www.apcims.co.uk and by visiting the "Directory of Members" page; click "Go" beside the 'Search the Directory' box and choose from the list. For more information call APCIMS on 020 7247 7080.