Recession fraud: Watch out for conmen selling fake shares
Saturday 02 May 2009
Sharp-talking swindlers are preying on millions of people by flogging them worthless shares. And these boiler-room scams are on the increase, the City watchdog warned this week.
The Financial Services Authority (FSA) said more than 12 million people could be targeted by salesmen pushing dodgy shares. It warned that the crime is likely to jump sharply in the economic downturn, with fraudsters using increasingly sophisticated techniques.
Traditionally, elderly victims are cold-called by fake stockbrokers and persuaded to buy shares in worthless, non-existent or near bankrupt companies.
New evidence suggests the crooks are using the recession to target people who have been made redundant. The conmen hope their smooth sales approach will trick people into handing over their pay-off cash for investments worth little, if anything.
The fraud could be costing the UK economy hundreds of millions of pounds a year, according to the City of London Police.
Detective Chief Superintendent Stephen Head, head of its economic crime department, says: "This latest information shows the ruthless approach of the criminals behind boiler rooms. It seems they are prepared to target anyone, however vulnerable, and will take their last penny if they can."
On Monday, four men were jailed for their part in a £2.5m boiler-room fraud. The scam conned about 500 people – mainly the elderly – out of their savings. Many lost tens of thousands, with one victim cheated out of more than £50,000 by the swindlers.
The mastermind behind the con was 51-year-old Londoner Claude Greaves. He described himself as an international tax expert but was in fact inside, serving a jail sentence for VAT fraud.
With the help of three others – Henrik Botcher of Denmark, Fraser Jenkins from Porthmadog, North Wales, and Roozbeh Yazdanian, an Iranian-born Briton – Greaves set up the Blackwell Capital Group.
They illegally sold restricted shares in a real oil exploration company.
The fraudsters lied to unwary investors telling them that the shares were about to be listed and would shoot up in price. They persuaded a number of investors to stump up 12p each for the shares, when they were actually worth just 2p.
The shares were grossly overpriced with a mark-up of 600 per cent. But they never did get listed or shoot up in value and many investors eventually realised they had been victim of a fraud.
The police became involved and set up Operation Storm, which followed an international trail from Spain, the UK, Hong Kong and the Caribbean. The result was that Greaves was jailed for five and a half years with his fellow crooks imprisoned for up to three years and nine months.
City of London Police Superintendent Bob Wishart, who heads Operation Archway, says: "These sentences will send out a strong message to those who see the selling of fake shares as an easy way to make a fast buck – you risk spending a long spell in jail."
The FSA this week linked up with charity Age Concern and Help the Aged to launch a scheme to protect older people from the scams.
Chris Pond, FSA director of financial capability, says: "Fraudsters, like all criminals, tend to prey on the most vulnerable people and our research shows this is definitely the case with criminals who commit financial crimes. This is a clarion call to everyone that we cannot sit back and let honest people lose their hard-earned money to unscrupulous individuals."
Older people are targeted because they often live alone and can be more vulnerable to the boiler rooms' tricks.
The conmen often make several calls to build up a relationship with their victims before their 'sting'.
How to spot a boiler-room fraud
There are some tell-tale signs to be wary of. The first is if you are contacted out of the blue.
Crooks will lie about their history and credentials and claim to be authorised by the FSA.
In truth – even if they have a UK-listed telephone number – they will be based overseas, often in Spain or Switzerland. If you have dealings with them, you will have no protection under British law for your cash.
If you have any doubts, take their details and check the FSA's authorised firm register. If they are not listed, they are not legitimate and you should ignore their calls or emails.
Adrian Lowcock, senior investment adviser at BestInvest, says: "There are several things a boiler room does that genuine investment firms will not.
"Boiler houses will try and sell you something without prior communication, making promises of high returns and no risk. A sure thing. The salesman will be very convincing but will pressurise you to get the sale, even becoming aggressive and rude.
"They want a commitment right away to ensure you don't have time to think about the offer.
"Often they will make claims of endorsements by major companies or celebrities to come across as the real deal but, if pushed to provide details of the company, they will be reluctant to do so. They may also use unfamiliar terminology to confuse or impress you.
"When a boiler house is selling an investment, you should ask yourself why they are not keeping it for themselves," adds Mr Lowcock.
Sue Concannon, managing director of Halifax Share Dealing, says: "Our advice is to say 'no' to unsolicited calls – they may not be calling from legitimate financial companies. Take as much information as you can and then check the company's credentials with the Financial Services Authority."
The fraudsters often get victims' names from shareholder lists. They will lie about your relationship and claim you filled in a marketing survey or responded to a mailing.
Sometimes they spend months grooming potential victims. A classic trick is to tell you that they have inside information about a certain share that will go up. When the share does then rise, it's easier for them to persuade people that they are genuine.
But for everyone they have told about the share rising, there will be an equal number of people that have been told that the share will fall.
Whatever happens to the share, the fraudster will have a long list of people who will have been tricked into believing something happened that didn't. And that foot in the door could be enough to then cheat people out of their savings.
Boiler-room fraud: What to look out for
Operation Archway is the police's national intelligence reporting system for boiler-room fraud. This week it reported on how such fraud is changing.
There has been an increase in reports of threatening and abusive calls. The operative, claiming to be a genuine broker, says victims have made a binding "verbal contract" over the phone and that they have recorded that "contract". Victims are then threatened with anything from intimidation to legal action.
Elderly and vulnerable
A significant number of victims are elderly and vulnerable and have lost their life savings. People are persuaded to cash in their life insurance policies or investments and use credit cards to buy the valueless shares on offer.
There has been an increase in female victims and younger males, indicating brokers will approach just about anyone. The only group yet to be reported as being approached is females aged 50 or younger.
Boiler-room scripts suggest criminals find men easier to deal with as "women ask too many questions". Research suggests men are more likely to feel shame and not report the crime. Victims are predominantly male and aged 50 or older. They tend to be experienced investors with a long history of investing.
False shareholders meetings
A new technique to gain credibility is to stage a so-called shareholders meeting. These are held in reputable hotels in major cities such as London and Edinburgh.
British bank accounts
In the past, investors were told by boiler rooms to send money to accounts based overseas. However, British bank accounts are being used more often to make the transactions seem more plausible.
Victim support: What to do if you are targeted
Fraudsters are targeting newly redundant people, as well as the elderly and anyone who has ever been on a shareholder register.
If you are worried about falling victim, go to the FSA's consumer website at www.moneymadeclear.fsa.gov.uk. It has tips and factsheets on boiler-room scams.
Before investing any money with a firm, check that it is authorised. You can search the FSA's register at www.fsa.gov.uk/register/home.do.
Some crooks will use the names of legitimate companies, however, so it's important to double check contact details.
The FSA also has a list of firms operating illegally at www.fsa.gov.uk/Pages/Doing/Regulated/Law/Alerts/index.shtml. If you recognise any of the firms listed, don't do business with them.
If you think you may already have been a victim of boiler room fraud you should contact the police.
To do so, go to www.cityoflondon.police.uk/CityPolice/ECD/Fraud/boilerroom.htm and complete the boiler room fraud questionnaire.
Then email the form to firstname.lastname@example.org or post it to Operation Archway, 21 New Street, London, ECM 4TP.
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