- Boiler rooms prey on older, male, experienced investors
- London and South East most heavily targeted
- A quarter of respondents pursued by boiler room for more than six months
People who fall victim to boiler room scams by purchasing virtually worthless shares lose an average of £20,000, the Financial Services Authority has found.
People who fall victim to boiler room scams by purchasing virtually worthless shares lose an average of £20,000, the Financial Services Authority has found.
The FSA surveyed callers to its consumer contact centre 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 authorised 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 £100,000.
Jonathan Phelan, Head of Retail Enforcement at the FSA said:
"Boiler rooms can be lucrative operations that fraudulently earn serious money. £20,000 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 authorised 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."
Boiler room victims
The survey found that boiler rooms tend to prey on older people. Of those who had fallen victim to boiler rooms, 38% were aged over 60 while 26% of victims were 51-60 years. The majority of victims were male (81%) and most were experienced investors with 41% of victims saying they had been investing for over 11 years. Most victims were from London or the South East. The South West and Wales had the least victims.
Many respondents reported that the boiler room repeatedly called them to encourage them to invest. While 15% of victims were persuaded to purchase shares during their first call, nearly half (49%) of victims were called four or more times before they succumbed. Regardless of whether they purchased shares or not, 63% of respondents reported that they were pursued by the boiler room for at least one month and nearly a quarter (23%) said they were receiving calls from the same boiler room for more than six months.
Jonathan Phelan said:
"Boiler room salesmen won't take 'no' for an answer. They will constantly call a target, trying to build a relationship and get their confidence. They will appear knowledgeable and highly professional but they are only interested in taking your money."
Boiler room characteristics
Many of the respondents (57%) reported that they were first contacted by the boiler room out of the blue on the telephone. Boiler rooms may also use a marketing firm to contact targets on their behalf according to 35% of respondents.
The people behind boiler rooms often move from operation to operation taking lists of potential targets with them and one quarter (26%) of respondents reported that they had been approached by four or more different boiler rooms.
Although boiler rooms do not necessarily operate from where they say, the most common countries that boiler rooms claimed to operate from were Spain (29%), the US (20%) and Switzerland (20%). Anecdotal evidence also suggested that Eastern European countries were popular locations for boiler rooms.
Jonathan Phelan said:
"If you get a call out of the blue, be wary. Check with the FSA whether the firm is authorised and remember that you are not protected if you deal with an unauthorised firm. The message is clear; if in doubt don't be polite, just hang up!"
For further information on boiler rooms visit www.fsa.gov.uk/consumer. Consumers can download a leaflet on boiler rooms, check whether a firm is authorised by the FSA, or if the firm calling is on the list of 'known unauthorised firms'. Consumers that have been targeted by a boiler room can report information via a form on the FSA website or by calling the FSA contact centre on 0845 606 1234.
What to look out for
Could you be a potential victim?
- Most likely to be male
- Usually over 51 years old
- An experienced investor
- Spending on average £20,000
- Once you've fallen for one boiler room there is a greater chance you will fall victim a second time
Is it a boiler room?
- The firm will not be authorised by the FSA
- Most likely to claim to be based in Spain, the US or Switzerland
- It will call you out of the blue or a marketing firm will call on their behalf
- Once you are on one boiler room's list you may be approached by other boiler rooms
- They could pursue you for at least one month even if you don't invest
Regional breakdown of respondents
| Region | Respondents targeted | Victims | Average investment |
|---|---|---|---|
| London/South East | 31 | 20 | £21,823 |
| South West | 9 | 2 | £4,000 |
| Midlands/East Anglia | 25 | 12 | £23,714 |
| North East | 7 | 4 | £8,833 |
| North West | 10 | 8 | £14,642 |
| Scotland | 8 | 5 | £26,100 |
| Northern Ireland | 5 | 4 | £27,250 |
| Wales | 5 | 3 | £22,800 |
Background
- The FSA's consumer contact centre receives 100 calls each month about boiler rooms. Between December 2005 and April 2006, callers who reported being targeted by boiler rooms were asked to complete an online survey about their experiences. The sample size was 100. 'Respondents' are those who completed the survey (sample 100). 'Victims' are those who reported losses by purchasing shares via boiler rooms (sample 58).
- Helping people to recognise scams and avoid them is a key element of the work that both the FSA and OFT are focusing on. Later this year the OFT will publish the results of a major piece of research into the prevalence and impact of mass marketed scams, including the type of people who fall victim and both organisations will use this to help us in this work.
- The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.
- The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness.
