Cardiff Council’s Trading Standards is warning people not to be taken in by scam ‘boiler room’ companies offering high returns on investments.
A boiler room scam, also known as a ‘share scam’, is when a fraudster pretending to be a stockbroker tries to sell shares that are either worthless or non existent.
The shares will usually carry a very high risk, be impossible to sell and are sold unsuspecting customers at an inflated price which does not reflect a company’s true prospects – and that’s if the shares are even real. Some fraudsters will simply persuade you to pay a fee upfront and then take the money and run.
If you already own shares on the other hand, you may be contacted by someone claiming that they want to buy them from you for a much higher price than what they are actually worth. But again the salesperson will simply convince you to pay a fee in advance and then disappear.
You should also be aware that fraudsters often share details about people they have successfully scammed, which means victims of fraud are more vulnerable – especially to ‘fraud recovery fraud’. This is when someone pretending to be a lawyer contacts you to offer help recovering the money you have already lost.
Deputy Leader of Cardiff Council, Councillor Judith Woodman, said: “Boiler room scams cost investors millions of pounds every year. Callers can be very persistent and extremely persuasive. In the event that you receive such a call, I strongly recommend that you consult your stockbroker, bank manager, solicitor, accountant or other professional adviser authorised under the Financial Services and Markets Act 2000 as soon as possible. Also, please report such activity to the Financial Services Authority by visiting their website and using the online unauthorised firms reporting form.”
10 signs it’s a scam
1. It’s a cold call. If you haven’t done business with the company before be very, very wary. Why are they calling you? How did they get your number? (Remember that you could also be contacted by email or post.)
2. The firm has an impressive sounding name. If you have never heard of the company before, regardless of how legitimate they sound, stay on your guard. Most fraudsters will use a professional sounding name and convincing website to look trustworthy – some even steal reputable names and masquerade as existing companies. They will also try to impress you with technical jargon and fancy sounding job titles.
3. The firm is based overseas. It is illegal for a UK-based company to cold-call someone and try to sell them shares so companies are usually based abroad. Many however will have a UK listed telephone number to look as though they are based in Britain.
4. You are promised astronomical returns. But the salesperson doesn’t explain how these great returns will be produced or why they can offer such high returns in comparison to other similar schemes. They may also try to tempt you with a ‘free gift’ or ‘discount’.
5. They claim to have ‘inside knowledge’. But they won’t tell you what it is or how they got it. What’s more, if they have found out inside secrets ask yourself why are they sharing them with you?
6. You’re told you can’t lose. Any investment involves an element of risk, so not only is this categorically untrue, but a legitimate company would never make this type of promise and most will point out all the risks to you clearly before you invest.
7. You have to buy there and then. The last thing a fraudster wants is for you to ‘go away and think about’ their offer. They therefore use high-pressure sale tactics to make you agree on the spot. If you feel under pressure to make a quick decision alarm bells should start ringing.
8. You’re asked to keep the call confidential. If it is a scam the fraudster certainly won’t want you to broadcast it to all and sundry as they could get caught out. Legitimate companies on the other hand would likely be happy for you to discuss the details with others and ask for advice.
9. You’re asked to pay upfront. Watch out for people who request an ‘advanced fee’ as a form of ‘security’ when you speak to them. Until you are sure the deal is legitimate and have given it some thought you should not be handing over any money.
10. They ask for your bank details. A reputable company would never ask for your bank details, or indeed any personal details, over the phone.
How to protect yourself
Remember, it’s not only novice investors who get sucked into this type of scam, experienced investors get caught out too. Here is a check list to help you protect yourself.
- Take your time to make a decision. Ask the salesperson as many questions as you can and ask for written material on the investment. Make sure you understand the investment being offered.
- Check the stockbroker’s details are listed on the Financial Services Authority’s (FSA) register of authorised firms. However, don’t just assume that because their name appears on the register they are who they say they are, as they may just be using the name. Try calling the firm back on the switchboard number provided by the FSA to make sure the call is coming from where it should be.
- Check the FSA website for a list of known scams and look to see if your experience matches what is on there.
- Do a little background research on the broker and find out if they have a good track record that can be backed up by an independent party.
- Compare the market to see if the return you are being offered is realistic and consistent with other similar schemes.
- Investigate a company’s status and contact details and check to see if it is a registered company on the Companies House website.
- Never, ever give out your personal information, such as bank details, out over the phone or by email.
If you suspect you have been targeted by this type of scam stop all communication with the company and report it at once to Action Fraud (the national fraud reporting centre), the FSA and your local police station. If you have given out your bank or credit card details contact your bank immediately to let them know.
Action Fraud helpline 0300 123 2040
FSA consumer helpline 0300 500 500
