How to recognise and avoid boiler room fraud
The term boiler room fraud refers to a common scam where fraudsters posing as salespeople contact unsuspecting individuals and offer them seemingly exciting investment opportunities, such as shares.
The victims are lured in by the promise of a great deal (or pressured into buying by the pushy 'salesperson'). But the shares then turn out be worthless, impossible to sell or just non-existent.
What are the warning signs?
Cold calls: If you have been approached out of the blue, be on your guard.
Too good to be true: Boiler room fraudsters try to tempt victims with fantastic deals. If it sounds too good to be true, it probably is.
Persistent tone and sense of urgency: Fraudsters will often try to convince their victims that they need to move quickly or they will miss out on a great opportunity.
Overseas accounts: In the past, a common indicator that the sale was fraudulent was when investors were instructed by the boiler room fraudsters to send money to accounts based overseas. However, there are more and more reports of British bank accounts being used.
Who are the victims?
These scams are not limited to novice investors. Victims of boiler room fraud come from a variety of backgrounds. And quite often it is experienced investors who are being conned.
In 2006, an FSA survey found that the average loss to investors in these types of scams was £20,000.
What should I do if I suspect I am being sold fraudulent shares?
- Check whether the broker is authorised by the FSA. FSA authorisation is a legal requirement in order to deal in or arrange investments. And a broker's details can be checked on the FSA’s website.
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Do a bit of background research on the broker. Do they have a proven track record that can be verified by an independent party? Are they a member of a trade association? Where are they based?
Don't just trust a flashy website as evidence of quality. Do as much research as possible into a share that the broker is proposing.
Fraudsters have been known to hijack reputable companies' names and websites and sell fake shares in them. It is a good idea to ask for a regulated firm’s Firm Reference Number and contact details, and then to cross check these details with those that appear on the FSA register. You can also check whether the company is registered at Companies House and whether the details held there match those you have been given.
- Don't be pressured into buying shares and don't send money unless you are confident about who you are sending it to and sure you understand the risks.
- Get independent advice. Call the FSA's consumer helpline on 0845 606 1234 – they can provide general guidance and they also hold a list of all known current boiler room fraud schemes.