Boiler Room Scams: Shares, Bonds And Unauthorised Brokerages

The term boiler room is used for sales calls made by call centre executives selling questionable investment options like penny stocks, mini-bonds or private placements on the phone. The fraudsters sell shares and bonds, often fictional, counterfeit or high-priced. 

The victims get cold calls from unapproved brokerages where high-pressure sales tactics are used for trading worthless deals to inexperienced buyers. Scammers aim to defraud people with life-changing amounts of money, and they may lose all the savings of their lives and even their families. 

The callers use advanced tactics to approach investors, offering to buy or sell stocks on the promise that they will get huge returns. 

Investment scams are associated with some of the biggest recorded losses where the tricksters make cold calls to vulnerable clients and use unusual techniques to persuade them to buy shares in the company or own land in some remote location with the promise that the cost of land will increase when the government permits the construction of villas on the purchased land. However, since the builder never gets permission, they never deliver the profits.

How Does the Scam Work?

• Boiler room frauds involve cold calls from people who are scammers who get the phone number of the victim from publicly available shareholder lists, and they indulge in high-pressure tactics where they send emails, brochures, posts, hold meetings with the client, practice word of mouth or invite interested clients to seminars.

• They post adverts in magazines, newspapers or online pretending to be genuine, and they offer free reports – market research about a company or offer gifts or discounts on early deals. All such tactics aim to push clients to make an early decision. 

• They may try to sell shares in a company that does not exist. They claim many buyers are waiting for the opportunity to get their share even at a higher price than the market price because it will deliver higher returns. The victim may even get bogus calls from people interested in buying the stocks.  

• They ask for money upfront to spend on security or bonds, and they say they will contact you once the shares or bonds are traded in the market, but they never respond to the client after getting the money.

• Most boiler room schemes are large-scale operations designed as long-term schemes to attract clients to place money into products. The seller can adopt aggressive sales tactics like emails, messages, calls, and even the threat to file a lien against their property to get your investment.

How To Identify A Scam?

The clients should know that no authorised institution ever uses pressure tactics to push them into deciding on any investment. The sellers make unsolicited offers that you did not ask for, and you may know nothing about the sender who posts messages. 

Furthermore, such fraud may involve identity theft, where the user's identity is stolen, and the criminals check your credit ratings online and use them to contact you. Therefore, one should be cautious about enquiries or follow-up regarding credit card details.

There is a close correlation between fraud and breach of contract in such frauds. Take legal advice from a legitimate organisation to seek clear guidelines about the litigation options available in case of losses in a scam. Many boiler room bogus firms use the Firm Registration Number (FRN) and address of the FCA-authorised company and individuals. 

In addition, they sometimes create a clone firm through reliable data where the contact details can be authentic. Still, you will not communicate with an authentic company representative when you try to contact them.  

They claim the firms' contact details are out of date, and they then provide a new phone number, address or details, claiming it to be the current details. They claim they are based overseas and are not registered with the latest details on the Register.

The messages from the seller promise to get high returns with no or very little risk when they try to sell unusual schemes, and the investors should be careful not to agree to the pressure tactics of the firms offering such schemes. 

One should never make any investment decision in a hurry and never send money or sign any agreement with firms that use pressure tactics through messages or cold calls.

How To Protect Yourself?

• FCA-authorised firms do not contact clients out of the blue and seek to finalise the investment agreement quickly. They do not sell bonds or shares to people, and buying bonds is not protected by FSCS unless there is a report of misconduct by the adviser. Options like mini-bonds are considered risky investments and should be avoided.

• Always be cautious if you are contacted out of the blue and compelled to invest promptly and promised to get high returns, which sounds too good.

• If you suspect you have been scammed into buying a fake option, contact the Consumer helpline number or fill in the online reporting forms.

Suppose you have already invested in a fraud scheme. In that case, the trickster can target you again through your previously registered contact details, or they may sell your information to other such criminals, who may contact you and promise to get your invested money back for a small fee, or they may offer to buy back your investment for a small fee. 

In case you suspect any such crime, immediately contact the regulatory bodies. The regulators may not help the victims, and the victims may not get compensation for the loss if the boiler room is not based in Britain. The client should always look for the UK-listed phone number to check whether they are based in the UK.