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Investment or share sale (boiler room) fraud

Background

Boiler room fraud is the common name for illegal and/or aggressive mis-selling of worthless, bogus or vastly overpriced stocks and shares or those traded in very limited volumes/markets. The sole purpose of the exercise is to defraud unwitting investors.

This type of fraud is on the increase and such scams frequently involve numerous victims. Many of those defrauded are experienced investors, and research shows most are males over 50 years old.

How the scam works

Boiler room or investment/share sale fraud commonly starts with a 'salesperson' telephoning to sell shares in little-known companies. Boiler room fraud frequently targets people in Australia, the UK and the USA, although calls may be made to investors in other markets.

If the victim does decide to deal (unknowingly) with a share sale fraudster, they will almost certainly lose any money invested and will have no recourse to compensation. This is because, despite what the salesperson may tell the victim, boiler room scams are almost always operated from a foreign country, meaning the individuals involved are not regulated by the appropriate authorities in the country where the victim resides and that no official protection or compensation scheme exists.

How to avoid becoming a victim

If you receive an approach of this nature and are living in the Australia, the UK or the USA, you should check the relevant regulators' websites below to confirm the authenticity of the company that the salesperson claims to work for. You should also check similar websites operated by regulators/authorities in the jurisdiction in which the salesperson purports to be based.

Share sale fraudsters are very persistent and will frequently offer gifts to entice potential victims, or free reports into the company in which they are trying to sell investments. The company will appear to have a legitimate website, and the fraudster may appear to be highly professional. He may also be unrelenting, often calling every day until the victim weakens and agrees to invest.

You should be particularly wary if the approach is unsolicited and/or if unrealistically high returns on investments are promised. You will find it difficult or impossible to obtain any evidence of the validity of the scheme and will be asked to keep the approach confidential. Telephone numbers quoted will often be untraceable mobile/cell numbers.

Advice for customers who are approached

If you are worried about the authenticity of a salesperson, ask yourself the following questions:

  • Was the approach from the salesperson unsolicited?
  • Does the potential return on the investment sound unrealistically high?
  • Was the contact largely one-way, ie was the salesperson reluctant to give their contact details?
  • Was the caller very convincing, highly motivated and professional?
  • Was English not their first language?

If the answer to any (or all) of these questions is yes, then it is almost certainly a boiler room fraud attempt, and our advice would be that all future calls from the salesperson should be ignored or terminated immediately.

Some victims will be absolutely convinced they are dealing with genuine companies, especially if they have been given apparently valid share certificates in return for their investment money.

If you are an HSBC customer and wish to go ahead with an 'investment' despite the warning signs or our advice about the suspicious nature of the proposal, unfortunately there will be little HSBC can do to help recover any lost money. If the proposal is a scam, there is virtually no chance you will get your money back and in most countries, it is unlikely you will have any recourse to complain for compensation.

You are strongly advised, before you part with any money, to check with the relevant authority that the company the salesperson claims to represent is on a regulator's register and is allowed to give financial advice and to make investment sales. If they are not, then no transaction should be undertaken.

Even if the company is on a register, you should not assume that the salesperson actually works for that company. Do your own independent checks and call the firm the salesperson claims to work for on a number not given by the salesperson. Any genuine salesperson will not mind customers undertaking their own checks.

Useful contacts

For UK customers
Financial Conduct Authority consumer helpline - 0800 111 6768
http://www.fca.org.uk/consumers/consumer-helpline

Financial Conduct Authority website - Scams
http://www.fca.org.uk/consumers/scams

Financial Conduct Authority website - List of unauthorised firms/persons
http://www.fca.org.uk/consumers/protect-yourself/unauthorised-firms/unauthorised-firms-to-avoid

For Australian customers
MoneySmart – Australian Securities and Investments Commission
https://www.moneysmart.gov.au/scams/investment-scams

Customers living in the USA and other countries/territories are advised to contact their local state/country authority to confirm the validity of the company the salesperson claims to work for. There is no central authority in the USA; the register of approved financial advisors is held at state level.