Boiler Room Fraudsters’ Efforts Rising, but Less Successful

April 24, 2012 /

There were more reports of share fraud activity in 2011 than 2010, but fewer people lost money, a Financial Services Authority (FSA) statistics show.

In 2011 the FSA saw a 19 per cent increase in enquiries about share fraud, commonly known as ‘boiler room’ fraud, with 5,401 reports made compared to 4,527 in 2010. In the same year, the FSA secured four criminal prosecutions for boiler room fraud: David Mason, and Tomas, Kevin and Christopher Wilmot.

However, despite the increase there was a seven per cent drop in 2011 (from 831 to 770) in the number of people who having been contacted by a boiler room, then invested. The FSA already warned about a rise in reports of ‘cloned firm’ share fraudsters in February 2010.

As the average investor loses approximately £20,000 to share fraudsters, the drop in the number of victims represents a significant amount of money that could have been saved.

The FSA has previously warned that share fraudsters increasingly clone genuine authorised firms or individuals to appear more credible, and the statistics support that trend. In 2011, there were 449 reports made about a number of cloned firms – almost three times as many as the year before when 161 reports were made to the FSA.

To help protect consumers from share fraudsters the FSA has created a new video about share fraud. It explains in simple terms what a boiler room is, how it operates, how consumers can avoid becoming a victim, and importantly what steps to take if they have been scammed.

Should anybody receive an unsolicited call or email from a firm offering to buy or sell shares, the FSA recommends taking the following steps:

ask for the contact details of the person calling you;
check the firm or individual’s status on the FSA register;
check the FSA’s ‘warning list’ to see if the firm is a known boiler room;
call the firm back on the switchboard number provided on the FSA Register to make sure that the call came from the legitimate authorised firm;
make as many other enquiries as possible to establish the firm’s validity; and
if in doubt – contact the FSA.
Anybody who has been contacted by a suspicious firm should report the encounter as soon as possible by calling the FSA on 0845 606 1234 or reporting it online.

Jonathan Phelan, the FSA’s head of unauthorised business, said: “It is encouraging that the number of people who actually parted with their money has dropped. This suggests that our warnings about unauthorised firms are getting through and people are better prepared when they are called out of the blue. So far, the figures for the early part of 2012 show this trend continuing – but it is too early to draw any firm conclusions just yet.

“A seven per cent drop in the number of investors might seem small, but in this case it represents 61 people. Our research shows that the average investor loses around £20,000, so it is possible that around a million pounds in consumer losses may have been prevented.

“We will continue to fight all forms of unauthorised business but the strongest weapon against scams remains common sense and a little bit of homework: check who you are dealing with and never forget that if it sounds too good to be true – it probably is.”

Share fraudsters, commonly known as ‘boiler rooms’, usually contact people by telephone and use high pressure sales tactics to con investors into buying non-tradable, overpriced or even non-existent shares. Boiler rooms are unauthorised, overseas-based companies with bogus UK addresses and phone lines routed abroad.

Unauthorised firms are not covered by the Financial Services Compensation Scheme therefore should somebody invest through an unauthorised business, it is highly likely they will lose their money if the firm goes bust or disappears.

 

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