The Financial Services Authority is contacting more than 76,000 investors to let them know they are targets for fraudsters trying to con them out of their money. Their names appeared on a number of lists recovered from companies that the FSA believes were involved in land investment scams or share scams, commonly known as boiler rooms.
Jonathan Phelan, the FSA's head of unauthorised business, says: "If you get a letter or email from the FSA over the next five or six weeks, please read it – it could save you tens of thousands of pounds. If you have already been contacted by a firm offering you a 'once in a lifetime' investment opportunity or have already invested, then tell us. The information you have could help us catch criminals and shut down their scams."
More investors reported boiler room scams in 2011 than in 2010, according to new figures from the Financial Services Authority (FSA). Despite the 5,401 complaints about the share fraudsters – an increase of 19 per cent from 2010 – fewer people lost money. It appears more investors are getting wise to boiler rooms, with a 7 per cent drop in 2011 (from 831 to 770) in the number of victims who were persuaded to part with money.
As the average investor loses approximately £20,000 to share fraudsters, the drop in the number of victims represents a significant amount of money.
Share fraudsters usually contact people by telephone and use high-pressure sales tactics to con investors into buying non-tradable, overpriced or even non-existent shares. These boiler rooms are unauthorised, overseas-based companies with bogus UK addresses and phone lines routed abroad. Unauthorised companies are not covered by the Financial Services Compensation Scheme; therefore should somebody invest through one, it is highly likely they will lose their money if the company goes bust or (more likely) just disappears.
According to the FSA, boiler rooms increasingly clone genuine authorised companies or individuals to appear more credible. In 2011 there were 449 reports made about a number of cloned companies – almost three times as many as the year before (161 reports).
Land banking companies divide land into smaller plots to sell to investors on the basis that once it is available for development the plot will soar in value. But the land often has little chance of being built on. Land banks also use cold calls and pressure selling to convince people to invest. The FSA does not regulate the sale of land, but land banking may amount to a collective investment – something that does require FSA authorisation.
Letters from the regulator have already started arriving on investors' doormats. Combined into one list, this is the largest number of target victims that the FSA has ever contacted in one go. Most of the list contains the names and addresses of the targets, but in 19,000 cases only email addresses are listed, so the FSA will be sending those people an email warning.
Mr Phelan says: "These lists are nothing more than fraudsters' phone books and the people that use them are ruthless, calculated and will stop at nothing to steal your money. A call out of the blue is one of the hallmarks of investment scams, so if you ever get an unexpected call with promises of fantastic returns you should be extremely sceptical."
The FSA's letter, which can be found online here, provides tips on how to spot a scam, avoid becoming a victim and what to do it you have already invested. If you receive an unsolicited call or email from a company offering to buy or sell shares, the best thing is to put the phone down. If you really can't bring yourself to do as the FSA recommends:
■ Ask for the contact details of the person calling you.
■ Check the company's or individual's status on the FSA register.
■ Check the FSA's unauthorised overseas firms operating in the UK warning list to see if the company is a known boiler room.
■ Call the company back on the switchboard number provided on the FSA Register to make sure that the call came from the legitimate authorised company.
Anybody who has been contacted by a suspicious company should report the encounter as soon as possible by calling the FSA on 0845 606 1234 or using this online form.
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