FSA Secures €77,000 for Victims of Boiler Room Fraud

Jack Humphrey, Regulatory journalist
February 22, 2012 /

Monobank Plc has turned over €77,000 (approximately £64,000) to the Financial Services Authority (FSA) following a court order to redress the victims of a boiler room fraud.

Monobank, a UK incorporated firm, provided promotional literature stating that it was in the final stages of setting up a prepaid credit card service in the UK and Europe and had entered into commercial agreements to that effect. However, the FSA found no evidence to suggest that any of this was true. Despite this, Monobank still managed to obtain a quotation on the Frankfurt Stock Exchange’s First Quotation Board.

At a case heard in the High Court in London, Mr Justice Peter Smith ruled that Monobank was complicit in offshore boiler rooms cold calling UK consumers and offering them shares in the firm.

Mr Justice Peter Smith’s order declares that Monobank contravened section 21 of the Financial Services and Markets Act 2000 by communicating an invitation or inducement to engage in investment activity without being either authorised or having the contents of any of the communications approved for the purposes of section 21 by an authorised person.

Some of the boiler rooms selling the worthless shares were: Ellis Capital Management; Fallon Brookes; Morgan Stern; Rothmans Capital; and International Consulting Services.

The €77,000 represents an interim payment, and the FSA is hoping to secure more through future actions. The FSA is currently aware of 20 victims of this particular scam but believes there may be others who have yet to contact the FSA and could be entitled to compensation.

Tracey McDermott, acting director of enforcement and financial crime at the FSA, said: “This is a good example of the FSA taking action against a company which was complicit in the promotion of its shares by boiler room fraudsters. In this instance, we have been able to recover assets for the benefit of victims, but this isn’t always the case. Normally, victims of share fraud don’t get any of their money back.

“We will use the full range of our civil, criminal and regulatory powers to deal with boiler rooms. This civil action is another success in our ongoing battle against unauthorised business and follows successful criminal prosecutions last year against four individuals for share fraud. Further criminal trials are planned.”

The FSA first took action against Monobank in August 2011 when it took steps to freeze its assets by obtaining an injunction from the High Court.

(Consumers who are shareholders or have subscribed for shares in Monobank plc and who are not already in touch with the FSA are requested to make contact with its customer contact centre on 0845 606 1234 or consumer.queries@fsa.gov.uk. More information about the contact centre is available online.)

Boiler rooms

Share fraudsters usually contact people by telephone to con investors into buying non-tradable, overpriced or even non-existent shares. These fraudsters are unauthorised, normally overseas-based companies with fake UK addresses and phone lines routed abroad. In the vast majority of cases, investors lose all of their money.

“If you are contacted out of the blue by somebody trying to sell you shares, you should hang up the telephone if you receive an out-of-the-blue call offering shares; check the FSA Register to see if the person selling shares is authorised to do so; call the company back using the details on the FSA Register to verify its identity; check the FSA’s list of known unauthorised firms; and report any company that cold calls you to buy or sell shares to the FSA or the Police,” the FSA said.

The FSA maintains a list of known unauthorised businesses on this website. The list is updated regularly with details of businesses that are believed to be are involved in boiler room activities and could be dangerous to investors.

 

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