Everything that glistens is not always gold.
You really learn the meaning of this statement after more than a decade in the City...
I've lost count at the number times some of my clients frantically called me in a blind panic, their voices shaking down the receiver... cursing their own stupidity at buying £10,000 worth of shares in "GetRichQuick Plc" solely on the advice of a persuasive chancer who'd ring them up in the middle of their lunch break...
Usually these persuasive salesman cold calls would come from the States or Spain.
And they wouldn't get much work done in the afternoon after that! The rest of their day would be spent hysterically searching the stock on AIM, praying to God it was actually listed.
When they discovered it wasn't they'd call me to check to see if I could find it, and whether I had heard of the firm ‘Boiler Rooms R Us’?
No doubt the majority lost large sums of money in a moment of pure madness, which of course, was never discussed.
The only person that can safeguard your investments is YOU
According to the FSA, the typical victim of these 'Boiler Room' scams is a middle-aged professional man WITH investment experience.
Hard to believe? But it's absolutely true and more and more of them are cropping up.
Just by receiving the Penny Sleuth you are ten times more informed about kosher small cap investments, but that doesn't mean the dodgy ones won't come a-knocking.
You see, these scams are not all the same...
Some use hard-sell unethical tactics promising huge returns, (but they nearly always turn out to be worthless), others sell shares that don't even exist.
Many disappear quicker than a politician leaving a brothel.
According to The Times the FSA receives hundreds of calls EVERY month from people who are taken in by these scams.
They know of at least 100 companies actively targeting British investors with boiler-room scams as I write!
So why aren't they doing something about it, I hear you ask?
But the reality is that the FSA’s powers are limited because they are usually based overseas, although many use a British forwarding address. This leaves investors unable to claim compensation from UK organisations when it all goes wrong - and as I said, it usually does.
So, how likely is it that you could be conned?
The majority of victims are in London and the South East (although this should be put in context with the number of respondents actually targeted), and the average spend is highest in Northern Ireland.
Here are some figures from the FSA website:
|
Region |
Respondents targeted |
Victims |
Average investment |
|
London/South East |
31 |
20 |
£21,823 |
|
South West |
9 |
2 |
£4,000 |
|
Midlands/E Anglia |
25 |
12 |
£23,714 |
|
North East |
7 |
4 |
£8,833 |
|
North West |
10 |
8 |
£14,642 |
|
Scotland |
8 |
5 |
£26,100 |
|
Northern Ireland |
5 |
4 |
£27,250 |
|
Wales |
5 |
3 |
£22,800 |
Take the case of one investor who responded to a phone call offering the opportunity to invest in an up and coming company...
Having had no prior contact with the caller - who, it turns out, was calling from Switzerland - they persuaded her to part with $27,000 from her savings to plough into this once in a 'lifetime opportunity'.
“They were very professional, and courteous” she recalled - well who wouldn’t be when you’re handing them cash hand over fist.
After swindling the first bundle they 'kindly' invited her to part with another $18,000. And she did.
At this point greed and stupidity had really kicked in... A little later, they called again, and told her that if she invested more, she could benefit from an imminent rise in the share price.
She explained that the only way to raise the cash would be to re-mortgage the family home.
"Do it" replied the adviser. (Alarm bells should have been ringing at this stage! A true IFA would never be allowed to advise you to sell a relatively stable asset, and put it into something far riskier – it simply isn’t good investment advice).
She ended up with an £80,000 debt and no way of recouping the money.
Or was there? It turned out she was one of the lucky ones, pushed on by her anger and sheer determination she managed to track down her money, but it wasn’t easy and it was a very long road.
Most investors in a similar situation would never see their cash again.
But it's not just investors who are at risk...
Boiler room scams are usually based abroad where their activities are often not illegal, but are outside of the UK’s jurisdiction. It makes it harder for the FSA to take action.
So please don’t give these swindlers any of your hard earned cash. If in doubt hang up, check the FSA website www.fsa.gov.uk or phone 0845 606 1234 to make sure the firm is authorised before parting with any money.
You'll find a list of 270 boiler rooms on the website. Fully regulated financial companies are not allowed to cold call prospective clients, so if this happens you already know they’re not legit.
This doesn’t just affect individual investors... small companies are also targets. Boiler rooms have been known to approach small companies in the UK, coincidentally just when they need to raise capital.
They'll offer to find potential investors, in return for commission (which could turn out to be 90% of the share price). The company is unaware that their shares are being sold by a boiler room, which obviously isn’t great for their reputation.
5 sure-fire ways to tell if you're getting scammed:
If they call you 'off the cuff' they are not an authorised firm. For starters it's illegal!
If they promise you the world, they're not an authorised firm – IFAs always use words like might, could, has the potential to – because let's face it, no-one can ever be certain of what might definitely happen.
If they're calling from Spain, Switzerland or the USA, check with the FSA that they are authorised before parting with any cash.
Legitimate companies are not allowed to use high pressure sales techniques. If they start trying overly hard to convince you invest, tell them where to go.
And finally, if it sounds too good to be true - it most probably is!
Until tomorrow...
Safe investing,
Melissa Carroll
for the Penny Sleuth
P.S. If you want to follow the tales of a small company investor, and uncover the hidden gems of the stock market, then sign up for the Penny Sleuth e-letter. It won’t cost you a penny…
