Cold heart, hot money

Millions of pounds are being winkled out of British investors by a so-simple-it's-brilliant scam in Spain - the Boiler Room. And there's little the law can do about it, says Justin Webster

Henry Howard is the manager of a very special type of office. In his mid-forties, with slicked-back hair and the gift of the gab, his public-school accent slips into cockney or a transatlantic rap when he gets worked up about the finer points of his business. A team of inexperienced, young English-speaking drifters are working for him in Barcelona, and he has to ensure that they perform: they are calling any Britons they can find who might have money to invest, people whose names have been passed to them by the "qualifiers", cold-callers in another office. The drifters-turned-salesmen are working from scripts, often written by Henry himself, and they are pretending to be financial experts, "portfolio advisers", offering shares that they say will bring the buyers huge returns.

Henry Howard isn't his real name, but very little is what it seems in a "Boiler Room" - a high-pressure sales operation pushing potentially worthless shares to anyone gullible enough to buy them. But writing off the victims too easily underestimates the techniques and technology that the sales teams utilise, and ignores the astounding success that Boiler Rooms - calling from secret locations abroad - are having in ripping off British savers.

"If you look at what makes someone a very wealthy person in this world," preaches Howard, with an insinuating, Ricky Gervais-style bravado, "it's his ability to get other people to do what he wants."

The Financial Securities Authority (FSA) has warned of a threefold increase in the number of Boiler Room scams during the past year. The typical Boiler Room aims at luring investors into a relatively small investment to begin with. The average reported loss is between £3,000 and £5,000, according to the FSA. But once an "opener", such as one of Henry Howard's workers, has made a sale, the "client" is passed on to a "loader", a more experienced salesman who knows how to entice a much larger sum out of the investor. The FSA is receiving 20 calls a week from distressed investors, with losses in some cases of over £100,000. In one scam under investigation by British police, a Boiler Room netted £7m from around 1,000 British investors.

Unsurprisingly, most of the victims are too ashamed or embarrassed to come forward publicly. On the website of the Investor's Chronicle, anguished punters are currently exchanging anonymous messages about the self-loathing they feel for having fallen for a Boiler Room pitch. Eighteen of the victims of one scam, perpetrated by a company purporting to call from Japan, are now in contact with each other and estimate their average loss to be £33,000. "I regard myself as a sensible, clever person that laughs at people I see on TV who have been ripped off, believing that it will never happen to me - yet, lo and behold, with my first purchase of shares, it's happened," said one, a railway surveyor, on the condition that he is not named.

"I didn't fall for it straight away. It's persistent phone calling. If it didn't have the websites and was just a case of 'you send the money', then I would never have fallen for it ... but there was the website, the press releases, and search after search on the internet showed it all to be OK. I fell for it."

An investigation has, for the first time, recorded how a Boiler Room works from within. The sharp increase in Boiler Room scams has a cause - a huge legal loophole in Spain that has attracted a new type of global operator into Britain's time zone. Boiler Rooms are an exclusively English-language phenomenon, but when they boomed in late-1990s Thailand, reaping millions and prompting turf wars among the firms, they were aimed primarily at victims in Australia and the US. Now they have found a comfortable home in a EU country, a cheap phone call away from Britain.

As an undercover reporter, Stephen Oliver landed a job selling shares for Henry Howard, in an anonymous office in central Barcelona. He simply answered an advert in the local English-language press that offered high commissions for telesales operators. "Leave your conscience at the door when you come to work for me," was Howard's advice at the interview when they first met. Stephen would earn €1,000 in the first month, while he was learning: after that, he'd get 15 per cent on any "sales". Over four days, the office manager schooled him on how to talk people out of their money.

The first step was to choose a false name. Stephen was to call himself David Simms, and to say he was calling from Vienna, not Barcelona. The Boiler Room he was working for operated to the outside world under the solid-sounding name of Franklin Asset Management. Its website depicts swish office towers in Vienna and Hong Kong. Potential victims can call the phone numbers on the web to check up on them, little suspecting their call will be passed by a messaging service to a cramped, shabby office in Spain. Their call will still be returned.

The second step was to learn the pitch. "Good morning/afternoon Mr... This is (your name) calling from Franklin Asset Management. How are you today? OK, Excellent! As you are aware (the company) is one of the best investment recommendations our analysts have seen in the last couple of years. (His name) Can you get yourself a pen and paper?"

Boiler Rooms sell just one share at a time. For its scam, Franklin Asset Management was pushing a Canadian company with shares listed in the US. It's an internet business that is moving into new and exciting products. "And this is where you need to go into it," coaches Henry Howard, reaching a crucial point in the script. "This is going to be a $20 stock in the next 12 months. This company's shares are listed in the US now at only $3.40 a share. You'll be looking at a very substantial return... We at Franklin don't just recommend shares and forget about you. We recommend when to buy and, most importantly, when to sell and take your profits."

Henry Howard stops for a moment. "They like that," he laughs, "if you've got this far, you should have the guy."

In every salesman's cubicle there is a sign posted that reads: "Ask for the Money." There is also a book on how to deal with the buyers' excuses, when he or she balks at the last moment. The vast majority of the people that Stephen calls - small businessmen, or company directors who have been screened by the qualifiers - cut off the conversation very early in the script. Hardly any slam the phone down. But he is expected to make 50 calls a day, and almost inevitably, a few show interest. It's a numbers game, Stephen's colleagues tell him, and the buyers are just voices at the end of the phone. "You can't think about the people," one explains. "If I started getting under the skin of these people, I'd never do it."

The shares are real and customers will actually receive share certificates, although they will be high-risk and potentially worthless. Anyone who shows interest is faxed more information, and encouraged to visit the company's website. To the inexperienced eye, the website presents a slick, fast-moving image. But if you bother to download the accounts, you can see that it is little more than a shell. Henry Howard encourages his workers with the fundamental incentive: they can get rich working for him. "Once you start believing in making money, believe me, it works.

In April, the FSA published a warning list of 41 "unauthorised" firms offering investments to British investors. The FSA is concerned that because the firms are unauthorised in the UK, if things go wrong, investors have no redress. Officials travelled to Spain to discuss the legal loophole that prevents the Spanish police from clamping down on Boiler Rooms, particularly in Barcelona, where they can draw on a large pool of English-speaking labour. As long as there are no Spanish victims, Boiler Rooms in Spain are only breaking civil, not criminal, law. Franklin Asset Management was not on the FSA list. But Jefferson Management was. From documents inside the Boiler Room, with Jefferson Management headings, and from the websites - Jefferson's is almost identical to Franklin Asset Management - it has become clear that the two operations are connected.

One of the key tactics of Boiler Rooms is to change their names and, if necessary, their offices, to avoid detection. As most of the victims will do some limited research via the internet, if the name appears on a regulator's warning list, it will be immediately dropped. The typical end of the scam is when the first victims start to realise that they can't sell the shares they have bought. The messages they leave at the virtual addresses are no longer returned. If they complain to the FSA, they soon find out that the company they were dealing with is not on the FSA's authorised list. Very soon, it has disappeared altogether.

Justin Webster's and Stephen Oliver's investigation into Boiler Rooms is on 'Channel 4 News', 7pm, tonight