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UK’s Financial Services Authority Acts To Stop UK Firm From Assisting Overseas Boiler Rooms

Date 27/02/2007

The High Court has placed The Inertia Partnership LLP (Inertia) into compulsory liquidation after the East Sussex-based company assisted boiler rooms which were unlawfully promoting and selling shares to UK consumers.

The order was made against the company as a result of a winding-up petition presented by the Financial Services Authority (FSA) because Inertia was found to have arranged at least £1 million worth of investment deals without authorisation under the Financial Services & Markets Act 2000.

The Judge, Mr Jonathan Crow QC, said that Inertia played a significant role in the operations of these boiler rooms and its participation was calculated to provide comfort and reassurance to consumers. He found that consumers were charged 'exorbitant' commissions - up to 200% of the actual price received by the share issuing company. He added that this is an appropriate case for the court to mark its disapproval of Inertia's activities.

The FSA investigation found that investors were cold called by boiler rooms, including Integra Advisory Group, AIM Management and Standford Long, who misled investors. Inertia acted as an 'escrow' agent and made arrangements for the purchase of shares in a number of UK companies.

Investigations also revealed that Inertia had dealings with Porterland Associates, based in the Seychelles, which is not authorised by the FSA and is believed to be involved in boiler room activity. As the company is based overseas the FSA can take little direct action against it.

Jonathan Phelan, head of retail enforcement at the FSA, said: "Investors were encouraged to take comfort in the fact that Inertia was based in the UK so their investment was supposedly safe, when in fact it was transferring substantial sums of investors' money to an unauthorised overseas organisation. Because Inertia was not authorised, investors do not have protection for the money they have paid over, such as access to the Financial Services Compensation Scheme or the Financial Ombudsman Service. Investors should always be cautious when they are cold called by any firm promoting or offering to sell shares and should first check to ensure that the firm is authorised by the FSA.

"UK companies who are seeking to raise finance for their business should also be aware of the dangers of dealing with unauthorised firms and individuals. Even where UK companies do not realise they have become involved with boiler rooms, they are likely to suffer adverse consequences to their business if the FSA has to intervene in order to protect investors."

Any investor who believes that they may have a claim against Inertia should contact the Public Interest Unit of the Insolvency Service, tel 020 7637 6680 or email: piu.or@insolvency.gsi.gov.uk.

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 promoted and sold are not listed on a recognised stock exchange so investors will have difficulty selling the shares. The boiler room often 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 FSA can, in some circumstances, take action against a UK based individual or company connected to a boiler room.