Boiler Rooms Trap All Kinds Of Investor

by Carla Johnson, Investors Offshore.com

09 October 2006

The UK's Institute of Company Secretaries and Administrators (ICSA) Registrars Group on Friday issued a warning aimed at raising awareness of the dangers of boiler room scams.

A recent survey carried out by the FSA revealed that, among a sample of just 100 victims, average losses were GBP20,000 and some reported losses over GBP100,000.

‘Boiler rooms’ are high pressure sales firms, often based overseas, who target investors – often sophisticated investors - to illegally offer them non-tradeable, overpriced or even non-existent shares. They acquire shareholder lists legitimately using data supplied under the Companies Act or from other sources. for use by listed firms

The warning, which can be distributed with other mailings to shareholders or via websites, suggests shareholders:

• ensure they get the name and contact details of any unsolicited caller;
• check that they are properly authorised by the FSA before getting involved; and
• report approaches from any unauthorised firm to the FSA.

Speaking at the annual ICSA conference, ICSA Registrars Group chairman, John Roundhill, said: “The Companies Bill will introduce greater protection for shareholders with tighter rules on access to registers including a new offence of ‘abuse of the register’ and proposed changes to the requirement for shareholder to be included details in Annual Returns. But it will do little to protect the investors whose names and contact details are already in circulation amongst the boiler room operators. The number of overseas unauthorised broking firms currently known to the FSA that are or have been involved in this type of fraud currently stands at almost 270 different named organisations. We therefore need to create maximum awareness amongst shareholders.”

Types of fraud include:

• the sale, at inflated prices, of US ‘Regulation S’ shares – banned for sale to US investors because they are considered too risky and only tradeable after 12 months to other, non-US investors;
• threats of unspecified ‘legal action’ and the freezing of assets made against potential shareholders who decide to not purchase shares, forcing them to go through with the trade.

John Roundhill continued: “Over the past year many Plc’s shareholders were targeted by overseas boiler rooms. Some companies mailed a specific warning to all private investors on the register and, for a company with a large number of registered holders, this would come at a significant cost. The format of the warning we are launching today means that this can be done without, at least, added mailing costs.”

“The message has been endorsed by the FSA and ICSA and will be available for use by companies should they wish to use it from today. A copy can be found on both the ICSA and FSA websites. Companies, registrars, FSA regulated firms and others are free to download it to make it available for the protection of UK investors and shareholders.”

Jonathan Phelan, head of retail enforcement at the FSA said: "We know that experienced investors are most heavily targeted by boiler rooms and this warning will support our work to get the message across to those who are vulnerable. Raising awareness is the most effective means of putting boiler rooms out of operation."

Recommended