DFSA Helps Thwart 'Boiler Room' Scam

by Lorys Charalambous, for LawAndTax-News.com, Cyprus

11 July 2006

The Dubai Financial Services Authority has played an integral part in helping the Japanese financial regulator close down a fraudulent investment company which had been targetting investors in Dubai.

The DFSA announced last week that after acting on complaints from investors located in Dubai it had passed on information to the Financial Services Authority of Japan, which then closed down Charles Fleming & Co. Ltd, which claimed to have an office in Japan.

Dubai investors had been targeted by Charles Fleming & Co with cold calls which attempted to persuade them to buy shares in Pan Pacific Asia Development, an unlisted company not approved by the FSA in Japan. According to the DFSA, after the purchase of shares, investors were informed that their funds had been transferred to another company and investors were pressured into making further trades if they wished to recover their original funds.

Charles Fleming & Co. Ltd directed investors to deposit their funds into a major commercial bank in Hong Kong. This information has been passed on to the Hong Kong authorities. No funds or share certificates have been recovered to date.

Acting on information from the DFSA, the FSA in Japan found that Charles Fleming & Co. Ltd was neither registered with, nor licensed by, the FSA as an investment advisor and the alleged shares were not approved investments. Their enquiries concluded that Charles Fleming & Co. Ltd was apparently operating a 'boiler room' scam.

Boiler rooms use high-pressure selling techniques to persuade investors to purchase shares. In the majority of cases, the shares are worthless and the boiler room vanishes, leaving the investor out of pocket. Such boiler room operations usually take place in a different jurisdiction to that in which their victims are located, and are not authorised by financial regulators, which in the past has made it difficult for the culprits to be tracked down.

The DFSA previously assisted other UAE police agencies in closing down SMI, another boiler room scam last year.

David Knott, DFSA CEO, noted that there has been a "worrying growth" in fraudulent schemes which attempt to lure investors into bogus offshore investments.

"Sometimes the sales pitch is very sophisticated and it is easy to think you are dealing with a legitimate firm," he observed.

"But the golden rule is to never send money overseas without first checking with a qualified financial adviser, accountant or lawyer," Mr Knott concluded.

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