FSA Survey Reveals Older Experienced Investors Targeted By Boiler Rooms

by Robin Pilgrim, LawAndTax-News.com, London

07 June 2006

A survey published by the UK's Financial Services Authority on Tuesday has found that investors who fall victim to boiler room scams by purchasing virtually worthless shares lose an average of GBP20,000.

The 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 UK investors to purchase shares.

Boiler rooms are not authorised by the FSA and act illegally by promoting and selling shares in the UK. 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.

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 by more than one boiler room, while three victims each reported losses of over GBP100,000.

Jonathan Phelan, Head of Retail Enforcement at the FSA explained that:

"Boiler rooms can be lucrative operations that fraudulently earn serious money. GBP20,000 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."

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.

Jonathan Phelan added:

"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."

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.

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