Don’t get burned in a boiler room

During the past year or so, the BBC has been drawing families’ attention to a relatively new threat generally referred to as boiler room scams. In this article we look at precisely what the term means and how dangerous these really are for those wishing to provide an independent education for their children.

Have you ever received a telephone call ‘out of the blue’ offering you the deal of a lifetime? It may be related to a work of art, but is more usually (at least at the moment) to shares. The caller will purport to represent a reputable stockbrokerage or similar business; at one time they used to call from New York, but more recently, they have taken steps to appear to be UK-based. In reality, they are probably based in Spain.

The thrust of the call will be to offer you a once in a lifetime opportunity to buy shares in a company that is just about to ‘take off’ in terms of share value, usually for very specific reasons, such as that they have the rights to a new drug, or have just discovered some form of mineral, but the news has yet to hit the market, and so on.

You might ask why, if this is so good, the salesman is bothering to tell you, rather than simply ‘filling his own boots’. But scams are much more sophisticated now. They do not always seek to sell you shares at once, but may instead attempt to build up a rapport so that you are less suspicious later on, when the real sting comes.

You can expect to be offered shares in a company that looks perfectly legitimate – it may even have an expensive looking website and brochure.

The scam

The reality is, of course, that the company does not exist at all, although there is likely to be a company with a similarly spelled name that you might look at on the Companies House website, if you are aware enough to be checking up!

You could be invited to invest anything from £2,000 to more than a million pounds. You might even have access to a website that shows the value of these shares increasing for a few weeks (but they will not, of course, be listed on the London Stock Exchange, or any other legitimate bourse). However, sooner or later you will discover that the site disappears, there is nobody answering the telephone at the offices of the company that sold you the shares, or at the address given on your impressive looking share certificate (if they bother issuing any) and it will be absolutely impossible to recover a single penny of your money.

In a recent development, you may get a call, a little later from ‘another’ firm offering to recover your lost investment for you – provided you pay a substantial fee first.

The defence

There is no such thing as a free lunch; similarly, there is no reward without risk. If you are offered a spectacular investment return, the chances are that you will lose every penny without ever having had the prospect of getting anything back, let alone making a profit.

• You should never invest in anything offered over the telephone by someone who contacts you, rather than you having approached them.
• You should never buy investments from overseas without knowing exactly what the risks and potential rewards are.
• You should never buy investments from anyone who is not authorised and regulated by the Financial Services Authority; if anyone claims that they are, ask for their registration number, visit the FSA website and check their details, it only takes a few moments and could save you thousands of pounds.

The police are well aware of boiler rooms and are working to limit their operations; investors can kill them stone dead simply by not falling for the promise of ‘something for nothing’.

It is important always to seek independent financial advice before making any decision regarding your finances. For further information, please contact your independent financial adviser.

Nothing contained in the article should be considered as giving individual financial advice. Please note that there may be variations for those living in Scotland and Northern Ireland.

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