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FSA Shuts Down Firms For Assisting Boiler Rooms

by Philip Morton, Investors

28 September 2007

The UK's Financial Services Authority (FSA) announced on Tuesday that it had closed down two UK-based Gibraltar incorporated firms for assisting so-called boiler room operations.

Boiler rooms are not authorised by the FSA. They act illegally by promoting and selling shares in the UK that are overpriced, restricted for onward sale and have little or no realisable value. The boiler rooms then often vanish, leaving the investor out of pocket. Boiler rooms are mainly based outside the UK and therefore the FSA is usually unable to take direct action to shut them down.

The two UK based firms, named as Chesteroak Limited (Chesteroak) and Bingen Investments Limited (Bingen), have been placed into compulsory liquidation by the High Court.

The FSA believes that about 800 investors sent money for shares to the two companies.

The order was made as a result of winding up petitions presented to the High Court by the FSA, in which the FSA alleged that Chesteroak and Bingen were dealing in shares or arranging deals in shares without authorisation. Chesteroak and Bingen did not oppose the FSA's petitions.

The order follows on from interim injunctions the FSA obtained against Chesteroak and Bingen in January 2007 stopping them from continuing their involvement in assisting boiler room activities in the UK and freezing their assets and other assets under their control.

Jonathan Phelan, head of retail enforcement at the FSA, cautioned that:

"Our action against these firms should serve as a warning to other UK companies and individuals who assist boiler rooms, that the FSA can and will take action to protect consumers."

"Where possible, the FSA will continue to protect investors. However, people should always be cautious when called out of the blue by anyone promoting or offering to sell shares. They should either hang up or at least check that the firm is authorised by the FSA."

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