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Who wants a word in your ear?

The FSA warns that the typical victim of a boiler room scam loses £20,000. Here, the Authority explains how to ensure this doesn’t happen to you.

The UK’s Financial Services Authority (FSA) surveyed callers to its consumer contact centre who had reported being targeted by boiler rooms – overseas operations that use high-pressure selling techniques to persuade investors to purchase shares. Boiler rooms are not authorised by the FSA and act illegally by promoting and selling shares in the UK and to UK investors abroad. In the majority of cases, the shares are worthless and the boiler room vanishes, leaving the investor out-of-pocket. Because boiler rooms are based outside the UK, the FSA is usually unable to take direct action to shut them down. This survey was conducted to demonstrate how boiler rooms operate, as part of the FSA's campaign to raise awareness of the scam. More than half (58%) of respondents to the survey had fallen victim to the scam by purchasing worthless shares. Of the victims, 13% had been conned more than once. Three victims each reported losses of over £100,000.

Jonathan Phelan, head of retail enforcement at the FSA says, “Boiler rooms can be lucrative operations that fraudulently earn serious money. £20,000 is a shocking sum and far more than most people can afford to lose.

“Sadly, victims are unlikely to see their money again because their shares will have been overpriced and nearly impossible to sell. Boiler rooms are not authorised by the FSA, and are based abroad outside our reach, so victims are not protected by the financial services compensation and complaints schemes. Our strongest tool is to make people aware of the scam.”

Boiler room victims
The survey found that boiler rooms tend to prey on older people. Of those who had fallen victim to boiler rooms, 38% were aged over 60 while 26% of victims were 51-60 years. The majority of victims were male (81%) and most were experienced investors with 41% of victims saying they had been investing for over 11 years.  Many respondents reported that the boiler room repeatedly called them to encourage them to invest. While 15% of victims were persuaded to purchase shares during their first call, nearly half (49%) of victims were called four or more times before they succumbed. Regardless of whether they purchased shares or not, 63% of respondents reported that they were pursued by the boiler room for at least one month and nearly a quarter (23%) said they were receiving calls from the same boiler room for more than six months. Mr Phelan explained further, “Boiler room salesmen won’t take ‘no’ for an answer. They will constantly call a target, trying to build a relationship and get their confidence. They will appear knowledgeable and highly professional but they are only interested in taking your money.”

Boiler room characteristics
Many of the respondents (57%) reported that they were first contacted by the boiler room out-of-the-blue on the telephone. Boiler rooms may also use a marketing firm to contact targets on their behalf according to 35% of respondents. The people behind boiler rooms often move from operation to operation taking lists of potential targets with them and one quarter (26%) of respondents reported that they had been approached by four or more different boiler rooms. Although boiler rooms do not necessarily operate from where they say, the most common countries that boiler rooms claimed to operate from were Spain (29%), the US (20%) and Switzerland (20%). Anecdotal evidence also suggested that Eastern European countries were popular locations for boiler rooms.

“If you get a call out of the blue, be wary.  Check with the FSA whether the firm is authorised and remember that you are not protected if you deal with an unauthorised firm. The message is clear; if in doubt don’t be polite, just hang up!” advises Mr Phelan.

Claiming compensation
Consumers can claim compensation of up to £48,000 if they have lost money as a result of their dealings with any one of 87 firms that the UK’s Financial Services Compensation Scheme (FSCS) has recently declared in default. The FSCS is the UK’s statutory fund of last resort for customers of regulated financial services firms and offers a free service to consumers. The FSCS explains that declaring a firm in default is the final part of a process whereby a regulated firm (such as a financial adviser) has been found by FSCS to be unable to pay claims. Customers who have lost money as a result of dealings with one of these firms can now make a claim for compensation to FSCS.

“It is important for consumers to know that if they have had dealings with one of these firms, and believe they may have lost money, they can contact us,” says chief executive Loretta Minghella.

Investment claims the FSCS handles usually relate to advice. The FSCS can also help if an authorised investment firm stops trading and cannot return its customers’ investments or money. A list of the investment firms in default can be located on the FSCS’s website at www.fscs.org.uk


What to look out for

Could you be a potential victim?
If so, you are…

• Most likely to be male.
• Usually over 51 years old.
• An experienced investor.
• Spending on average £20,000 per investment.

• The firm will not be authorised by the FSA.
• Most likely to claim to be based in Spain, the US or Switzerland.
• You will be called out-of-the-blue or a marketing firm will call on their behalf.
• Once you are on one boiler room's list you may be approached by others.
• You could be pursued for at least one month even if you don't invest.
• For further information on boiler rooms visit www.fsa.gov.uk/consumer. Consumers can download a leaflet on boiler rooms, check whether a firm is authorised by the FSA, or if the firm calling is on the list of 'known unauthorised firms'. Consumers that have been targeted by a boiler room can report information via a form on the FSA website.