Beware Cold Callers !

Cold called and offered a red hot share tip? Be very aware, it could turn out a lot hotter than expected. So hot, in fact, that the shares (and your money) vaporise in the intense heat of this boiler room trading scam.

You may be disenchanted with current investment opportunities and performance in these credit-straitened times, but don't let your enthusiasm to reassess and realign your investment portfolio turn you into the perfect prey for a smooth-talking, ever so convincing salesperson.

Yes, we are in a bear market and an exciting share offer will always have a 'grass looks greener' feel to it. Yet that grass will not only be just as tough to mow, it could also dry up and become your very own financial dustbowl. Boiler rooms are high pressure sales firms, unauthorised and often based offshore, that specialise in worthless investments. They target investors illegally, offering overpriced, non-tradable and often non-existent shares. Collectively UK investors donate upwards of £500 million to such hucksters each year. The average individual loss is around £20,000, although the Financial Services Authority (FSA) has reported a case where the investor lost £500,000 and it believes many others are too embarrassed to admit being swindled by boiler room activity.

Not that it would do them any good. Because such sales outfits are unauthorised, the Financial Services Compensation Scheme cannot offer redress to victims of boiler rooms. Hence the FSA has now teamed up with the main company registrars to warn investors. Together with the Institute of Chartered Secretaries and Administrators (ICSA) Registrars Group, the FSA is urging stockmarket-listed companies to include warning leaflets about boiler room scams in their communications with shareholders.

Shareholder lists are sold and resold by boiler rooms, although from October this will be more difficult to implement; new Companies Act provisions will force buyers of lists in stockmarket companies to state the purpose of their purchase. "This won't stop the old lists circulating but they will become less valuable as time goes on," says Andy Cotter, chair of the ICSA. "No company wants its register used to target unsuspecting shareholders with high-pressure sales pitches."

What you should do: If you pick up the phone and get some smooth patter about the benefits of investing in shares of a company you've never heard of, get the caller's company name and say you will phone back. Ignore protestations about 'time is tight and the offer could be withdrawn.'
Then check the FSA website to see if the company is authorised or whether it is on the black list of some 500 known financial rogues. Report to this City watchdog any firms that cold call you offering to sell shares. The FSA in the past 18 months has taken action against seven firms operating as boiler rooms or working on behalf of such scams. Its recently updated leaflet explains how to identify and what to do about them should they contact you.

The message should be clear: don't buy from a boiler room unless you really do have money to burn.