Police have swooped on a network of criminal gangs dedicated to fleecing investors. How big is the problem? Simon Wilson investigates.
Police in Spain and Britain have busted an extensive network of organised criminal gangs who cold-call UK investors and trick them into buying worthless or nonexistent shares; 110 people, mostly British, were arrested on suspicion of money-laundering and fraud offences.
It’s the biggest crackdown to date on so-called boiler-room fraud and comes following a two-year investigation code named Operation Rico, jointly run by City of London police and Spain’s Policia National. The investigation culminated last month in the closure of 14 alleged boiler rooms in Spain, two in Britain, and one in Serbia.
Of the people arrested, 84 were held in Spain – in Barcelona, Madrid and Marbella – and 20 in Britain. Four were arrested in Serbia and two in the United States. Among the ill-gotten gains seized by police were luxury cars, clothes, watches – and £500,000 in cash.
How big was the alleged fraud?
So far, 850 victims of the gangs, most of them pensioners, have lost a total of about £15m after being talked into buying bogus shares in carbon credits, gold, renewable energy, forestry, eco projects, wine and land. Individual losses range from £2,000 to £500,000.
However, police say that they believe the victims they’ve identified so far are the “tip of the iceberg”. They say the true number of people duped by the gangs runs into the thousands, and includes at least one victim who killed himself as a result of the swindle.
City of London police say they were focused on taking out the top echelons of the fraud gangs – the lawyers, financiers and money-launderers – rather than the foot-soldiers manning the phones.
What is a boiler room?
The term ‘boiler room’ was first coined in America to describe the rooms hired by political parties at election times, packed with volunteers speed-dialling prospective voters. In recent decades it has become a byword for the cheap, over-crowded – and, it may be presumed, unpleasantly hot – offices where fraudsters sit in close proximity serially calling ‘sucker lists’ of potential share buyers to flog them worthless stock.
Typically, the leads are generated from the share registers of legitimate companies. In other words, the people who fall for the fraudsters’ spiels are not wet-behind-the-ears novices. They are typically older – many of them retired – and include sophisticated investors with considerable sums.
The Financial Conduct Authority (FCA) puts the average loss at £20,000. The biggest individual loss it knows about is £6m and the sums lost annually to boiler-room frauds are £200m.
Why would anyone fall for this?
Because the perpetrators present themselves highly credibly and draw in their victims by building up relationships. Victims of boiler-room scammers often speak of how the personable young man on the phone became “quite a pal”, or how “I felt I got to know him quite well. [It seemed like] he was very thoughtful and kept in touch regularly”.
One 72-year-old victim who lost £70,000 told The Daily Telegraph last week that “he used to phone me up and talk about football and his family. He was just a nice guy and he was educated and he said his father was a councillor. He was just grooming me… he even phoned me up and said he had nothing to do one afternoon and just wanted a chat.”
That pensioner initially “invested” £3,000 before gradually being pressured into increasing his “stake” to £50,000 – and only became suspicious when his new chum suggested he raise more cash by remortgaging his home.
What are their other tricks?
They often claim to be selling shares in slightly alternative or cutting-edge areas, so they can flatter targets into thinking they are “getting in early”. Current favourites for the fraudsters are graphene and rare-earth metals, for example.
Also, the conmen often hijack the name of a respected genuine firm to lull their victims into a false sense of security – using a mix of the real business’s details and their own. That way, anyone who checks whether they are on the FCA’s register will apparently find them.
If the victim asks why the contact details are different, the scammers will say the register is out of date. In recent months, for example, investors have been targeted by callers from “Chelsea Financial”, who provide victims with the postal address of (the legitimate) Chelsea Financial Services, but with different phone numbers and a cloned website.
Other recent clones include “Brookes and Hargreaves” (attempting to rip off Hargreaves Lansdown) and “deVere Group UK”, masquerading as the UK division of deVere Group, an international financial services firm that predominantly markets itself to the expats.
How do I avoid getting scammed?
The official advice from the UK’s consumer finance watchdog, the FCA, includes the old adage that ‘if it sounds too good to be true, it probably is’. So never invest as a result of a cold call, and never be rushed into investing for fear of ‘missing out’.
Other key advice is (i) Be firm in saying no: if the fraudsters can keep you talking, you have not really said ‘no’. (ii) Check the FCA register to confirm a firm is genuine, and make your own additional checks into both the firm and the proposed investment. (iii) Beware of fake websites: make all your checks directly on Fca.org.uk – and visit the site for detailed advice on how to spot and avoid scams. (iv) If you have any concerns, or if you fear you have been a victim, call the FCA’s Consumer Helpline on 0800-111 6768.