People who fall victim to boiler room scams by purchasing virtually worthless shares lose an average of GBP20,000, the Financial Services Authority (FSA) has found.
The FSA surveyed callers to its consumer contact center who had reported being targeted by boiler rooms – overseas operations that use high-pressure selling techniques to persuade UK investors to purchase shares.
Boiler rooms are not authorized by the FSA and act illegally by promoting and selling shares in the UK. In the majority of cases, the shares are worthless and the boiler room vanishes, leaving the investor out of pocket. Because boiler rooms are based outside the UK, the FSA is usually unable to take direct action to shut them down. The survey was conducted to demonstrate how boiler rooms operate, as part of the FSA’s campaign to raise awareness of the scam.
More than half (58%) of respondents to the survey had fallen victim to the scam by purchasing worthless shares. Of the victims, 13% had been conned by more than one boiler room while three victims each reported losses of over GBP100,000.
Jonathan Phelan, head of retail enforcement at the FSA, said: Boiler rooms can be lucrative operations that fraudulently earn serious money. GBP20,000 is a shocking sum and far more than most people can afford to lose.
Sadly, victims are unlikely to see their money again because their shares will have been overpriced and nearly impossible to sell. Boiler rooms are not authorized by the FSA, and are based abroad outside our reach, so victims are not protected by the financial services compensation and complaints schemes. Our strongest tool is to make people aware of the scam.