Boiler room fraud - Operation
Archway
City of London Police is responsible for co-ordinating Operation
Archway, the national intelligence reporting system for mass
share-marketing, or boiler room, fraud: a crime where investors are
cold-called by bogus stockbrokers and persuaded to either buy
worthless or non-existent shares, or to buy genuine shares at
vastly inflated prices.
If you think you may have been a victim of this type of
fraud, you should report the matter to your local Police station
for investigation. Operation Archway would also like you to
complete a
Boiler Room Fraud questionnaire (Word document,
156KB or
PDF, 37KB). Once you have compiled your
responses please email the form to
operationarchway@cityoflondon.police.uk
or alternatively, post them to us at:
Operation Archway,
City of London Police,
21 New Street,
London,
EC2M 4TP
What is boiler room fraud?
A 'boiler room' is a bogus stockbroking company, usually based
overseas, which cold-calls investors and pressures them into buying
worthless shares. Historically, those targeted were older people
with previous experience of investments or share dealing, who
typically lost £20,000 each to the fraudsters; 50% of investors
today are aged over 65. The biggest individual loss to date
recorded by Operation Archway is £1.2 million.
In the current economic climate, boiler rooms are starting to
target victims who have redundancy money or those who are not
experienced investors, and are asking for smaller sums of money to
invest.
Those operating the boiler rooms have developed new strategies
to target investors, such as a promise to recover monies lost to
the original boiler room, or to purchase these worthless shares
(once an up-front fee has been paid). In addition, investors are
being encouraged to sell previously highly regarded 'blue chip'
company shares, such as banks and financial institutions and to
invest in green or new technology shares marketed by the boiler
rooms, or even to take out loans to fund new investments.
These fraudsters are usually well spoken and knowledgeable. They
are also persistent. They might call their victim several times
with offers of research, discounts on stocks in small overseas
companies, or shares in a firm that is about to float. Boiler rooms
make their money in one of two ways: by simply taking money and
walking away, or selling shares at vastly inflated prices and with
exorbitant dealing charges.
Police advice is not to accept cold calls, however persistent.
Always seek legal and independent financial advice.
The Fraud Advisory Panel
(www.fraudadvisorypanel.org, opens in a new
window) have produced a
leaflet (60KB, PDF) with practical advice to consider before
purchasing shares, which is recommended reading.
Often, shares are offered in USA companies that have, or are
about, to float on the stock market. These regularly prove to be
'Regulation S' (or Rule 144) shares, which can only be sold to
non-US citizens and have other limitations. Any company offering
shares in connection with the American stock exchanges should be
checked at the US
Securities & Exchange Commission (opens in a new
window).
Scams often have similar features that may alert you to the fact
that they are not genuine:
- if it sounds too good to be true then it probably is
- if you are asked for money up front to pay unexpected fees
(such as taxes or charges) before your 'prize', 'winnings' or
'profits' can be released
- you are asked to provide your bank account, credit card details
or other sensitive personal information
- you are put under pressure to reply immediately "or the money
will be given to someone else "
- you are asked to keep the details secret
Please remember that any company, no matter in which country
they are based, must be registered with the Financial Services
Authority to offer shares for sale to people living in the UK.
Recovery Room
A number of "recovery rooms" are now offering to assist
those defrauded by boiler rooms. They will approach a victim of
boiler room fraud and, for an upfront fee, promise to review their
case and obtain reimbursement from a European Court fund or other
legal avenue. Fees are often taken over the telephone by credit
card payment or through PayPal, and it is thought that the recovery
rooms purchase names of victims from the boiler rooms
themselves.
Recently, recovery rooms have stated that they are working
either on behalf of, or in conjunction with, Operation Archway, the
UK Financial Services Authority or the US Securities & Exchange
Commission, in an attempt to give validity to their scam. It has
also been suggested that the ‘fund’ the recovery room seeks
reimbursement from are monies that the Police have restrained and
failed to return to the original investors.
Operation Archway do not work in conjunction with, or
endorse, any financial companies, legal firms or other
organisations to return recovered funds or represent investors,
with the exception of the Financial Services Authority. Any funds
that are recovered during an investigation are repatriated to
investors under the Proceeds of Crime Act and every attempt is made
to identify investors to benefit from such funds.
What does Operation Archway do?
Police are only one of several agencies investigating
mass-marketing fraud, including the Financial Services Authority;
Trading Standards services; the Office of Fair Trading and the
Serious Organised Crime Agency in the UK, as well as overseas law
enforcement and regulatory organisations.
Operation Archway assists in co-ordinating the efforts of these
agencies in the UK and overseas; by collecting, analysing and
disseminating boiler room fraud intelligence; and supports criminal
investigations. Each UK police force is responsible for
investigating reports of boiler room crime in their police area,
and Archway assists by putting investigators and victims in touch
with each other, and by providing information packages on
individual boiler rooms to investigators.
During an investigation, each piece of information is followed
up, including telephone numbers, bank accounts, physical addresses
and Internet addresses. Often, fraudsters make use of serviced or
virtual offices to provide a prestige address; call forwarding
services to hide their true locations; or indeed simply make up an
address with which they have no connection, to lend an air of
authenticity to their operation.
Operation Archway does not receive routine notifications of
arrests or boiler room investigations, and legal procedure rules
often prevent police from publicising the arrest of criminals until
after any trial is concluded; fraud investigations are typically
lengthy and can take several years to reach a conclusion.
Is any money recovered?
It is rare that monies paid to boiler rooms are recovered.
However, there are occasions where accounts are frozen in the UK or
overseas, from which victims of that particular boiler room can be
compensated. However, this requires a series of court applications,
although new legislation is now in place to make it easier for
police to recover monies frozen overseas.
Equally, when a fraudster is convicted, typically a confiscation
case will take place, under the Proceeds of Crime Act (2002), to
try and recover funds obtained through crime from the criminal.
The Financial Services Authority (FSA)
The Financial Services Authority (FSA) regulates the activity of
companies operating in the UK financial sector, including banks,
stockbrokers, financial advisors, spread-betting agents and so on.
The FSA recommends checking its website (www.fsa.gov.uk) both for a
list of boiler rooms and to find out if the stockbroker is
authorised to operate in the UK. The FSA is unable to take action
if the boiler room is not based or authorised in Britain, so
investors are vulnerable as they will not be able to claim
compensation from the FSA or the Financial Ombudsman Service if
something goes wrong.
Other useful links at the FSA website:
The Securities & Exchange Commission (SEC)
The SEC is the American equivalent of the Financial Services
Authority and has a similar remit. If you are considering buying,
any US shares, please use the extensive resources available at the
SEC to research the company before purchasing.
Useful SEC website links:
What about other marketing frauds?
There are many types of mass-marketing frauds; however,
Operation Archway only deals with share-related frauds. Other forms
of this crime include:
- International lottery wins
- Romance invitations
- Clairvoyance
- Land, wine or ticket sales
- Counterfeit cheques/postal orders
- Miracle cure/ weight-loss programmes
Where a crime has occurred, you are advised to report it to your
local Police force or Trading Standards team; alternatively, the
Consumer Direct helpline will take a report and pass it on to the
relevant team: