Don't Get Burned in the Boiler Room

Fraudulent offshore dealing schemes are called boiler rooms because the activity of the ultra-aggressive salespeople’s trading is so frenetic that they claim it generates ‘heat’.

Their intention is to dupe private investors into buying worthless - or nonexistent - shares. They do this by bombarding a person with unsolicited phone calls (sometimes as many as 20 a day) and using high-pressure sales talk to convince their intended victims to invest in a business – usually a small company based overseas.

Cash up front is usually demanded, and then more money is often requested when the shares fail to perform. When investors are out of pocket and can afford no more, the boiler room abandons them - either closing down and starting up elsewhere (this happens frequently), or employing someone to loquaciously but stubbornly field all calls from aggrieved clients.

Sometimes, a boiler room will offer to sell a victim’s existing shares for way beyond the market value – provided a large sum is first handed over ‘to pay for the bond to secure the sale’. Of course, this is a sham.

Targets are most often chosen from the shareholders registers of large companies, and aren’t only naïve investors. They are frequently middle-aged professional men who have a great deal of investment experience. They will often have had their fingers burned on high-risk investments and want to try one more time to make a killing on the stock market.

Boiler room traders’ patter is well-scripted and very slick, and the swindlers don’t take no for an answer. They make promises of returns that are unrealistically high but nevertheless entice many an unwitting investor with their eye on a fast buck.

The fraudulent sales people’s pitch will often be backed up by a professional-looking website, and they may offer enticements such as discounted dealing charges and free reports into legitimate companies in which intended victims already own shares.

Many UK investors are scammed by boiler rooms every year, sometimes handing over thousands of pounds each. Around 100 victims of boiler rooms complain every month to the Financial Services Authority (FSA), the British regulatory body that has a unit dedicated to monitoring boiler room activity.

Boiler rooms originated in the USA. They are illegal in the UK, but thrive in other countries such as the States, Spain and Switzerland.

The FSA liaises with police forces and other authorities at home and abroad, and has successfully prosecuted a small number of boiler room operators in continental Europe.

There are several ways to know if you have been targeted by a boiler room. To begin with, financial companies are not meant to cold-call customers who have not requested the firm’s services. So beware of any unsolicited approaches by phone, email or post.

A sham operation may operate from a PO box, not use a known UK bank or ask that you reveal personal financial details. It might also seem to be rushing or forcing you into making a decision, or may request money up front – which a genuine financial adviser would never do.

What a legitimate operator will do that a boiler room won’t is explain the risks of an investment as well as its advantages.

For safety’s sake, deal only with companies regulated by the FSA, which carries on its website a rundown of members as well as a blacklist of known boiler rooms. If a firm doesn’t appear on the list of swindlers, don’t automatically assume that it isn’t a boiler room.