5 October 2012
2 min read
Boiler room operations are on the up. In an area of fraud that relies on bogus figures there are some that stand out as being genuine. The Financial Services Authority (FSA) has reported that last year it received 5,401 reports of boiler room fraud – up from 4,527 in 2010. That is an increase of almost a fifth. When you also bear in mind that the FSA knows of 770 people who paid out an average of £20,000 to alleged boiler rooms last year, the scale of the problem becomes apparent.
Boiler rooms usually involve people being telephoned and persuaded to buy shares the caller has no right to be selling: either real shares in a genuine company that the caller doesn’t possess, non-existent shares in a genuine company or “shares’’ in a completely fictional company. Fictional addresses, phone numbers and websites can give the appearance of UK respectability to an operation that is most likely run from abroad. The FSA reports that the number of boiler rooms using “cloned’’ versions of genuine firms almost tripled last year to 449, from the 2010 total of 161.
Nothing is what it seems at face value in such operations – modern technology has helped boiler rooms prosper by creating an authentic-looking image. At Rahman Ravelli, we have been involved in some of the biggest boiler room cases. As a result, we are ideally placed to advise those accused of working for a boiler room who maintain their innocence. The victims of boiler room fraud are very often not only those people who have handed over their money and received nothing. Many of those arrested when a boiler room is raided are equally innocent – and also face losing whatever wealth they have.
At Rahman Ravelli, we have seen that many of those involved in the selling believed they were offering investors genuine stock. All too often, the boiler room is inhabited by dozens of poorly-paid people who saw it as their only chance to gain employment. They are taken on to do the cold calling for a meagre wage, with most of the proceeds going to the men at the top. All the effort that may go into making a boiler room operation look reputable to investors can be equally misleading to those who go and work for it. On many occasions, boiler room raids by the authorities only result in them catching the little men in the room… leaving the big guys outside the room free to set up and start all over again. All too often, the people arrested need the right legal advice instantly if they are to ever gain justice. The FSA is, of course, the regulator. That is why many of these operations are based overseas so they can practise away from the FSA’s authority. Spain, and principally Barcelona, was the favourite stomping ground of those involved but Rahman Ravelli has advised in cases where the operators were selling in the UK market from Korea and the Middle- East.
Jonathan Phelan, the FSA’s head of unauthorised business, said: “We will continue to fight all forms of unauthorised business but the strongest weapon against scams remains common sense and a little bit of homework: check who you are dealing with.” Such advice is correct for any would-be investor. But, before a raid, the regulators themselves are in no position to carry out the appropriate checks. They cannot, therefore, determine who is innocently working for a boiler room and who are the masterminds behind it.
As a result, Mr Phelan’s advice could equally apply to anyone who is about to become innocently entangled in the operation of a boiler room. And, just like the unlucky person who invests in a boiler room, the unfortunate person who ends up working for one will eventually need expert legal advice to help save their skin.