Page last updated at 00:02 GMT, Friday, 21 March 2008

The great British share swindle

By Terry Messenger
BBC Money Programme

Britain's 10 million small shareholders are being systematically targeted by an international criminal network of fake investment firms who have conned them out of millions of pounds.

FSA web page about share scams
The Financial Services Authority is well aware of these frauds

When Dr John Ashley got a letter from Spain offering him free advice on his savings, he thought it wouldn't do any harm to say yes.

How wrong he was. Eighteen months later and 60,000 poorer, Dr Ashley rued the day he listened to Madrid-based investment firm Benjamin Fisher.

He is one of Britain's 10 million small shareholders who are being systematically targeted by an international criminal network of fake investment firms.

Their incentive is purely down to extracting as much money as they can from every individual they can, and moving on
DCI Bob Wishart,
City of London Police

The scam investment firms, known as "boiler rooms", have fleeced ordinary British savers out of hundreds of millions of pounds in a massive swindle which may add up to the UK's biggest theft.

The Money Programme looked at three examples that have left ordinary investors out of pocket.

Dr Ashley, from Cheshire, ended up buying 60,000 of shares through Benjamin Fisher - which crashed in value and proved to be unsaleable at any price.

He was devastated. He says, "If I could have given my two kids 30 grand off their mortgage, I'm sure they'd be absolutely delighted. That would be a lot more pleasant than looking at a big hole in my bank account."

Taking the bait

Benjamin Fisher hooked Dr Ashley by offering him a free report on a legitimate company in which he owned shares.

He returned a form requesting the report, giving Benjamin Fisher his phone number and consenting to being contacted with further information.

The next he knew, a friendly and insistent salesman was on the phone offering him shares in a mining company, supposedly with great prospects. He was tempted and invested a small sum.

The share price rose and he bought more and more from Benjamin Fisher of what are known as Regulation S shares, believing he was on to a winner.

One hundred dollar bill on a hook
"Boiler rooms" hook victims with pressure and a persuasive pitch

What he did not realise was that Regulation S shares are almost impossible to sell on. And to make things even worse, the share price crashed, leaving his investment of 60,000 with a value of 5,000.

Dr Ashley is far from alone. The scam has been going for decades, starting in the US.

Boiler rooms first sprang up in pre-war New York where, according to the legend, mobsters rented boiler rooms in Wall Street offices, because that was all they could afford.

But lately, the FBI has cracked down in America, so the "boiler room" companies have turned their attention to Britain.

The City of London Police has set up Operation Archway, headed by DCI Bob Wishart, to tackle the growing threat to the UK.

DCI Wishart says: "We did a conservative estimate based on what victims have reported to us, where we believed in excess of $100m had been lost. We actually believe that figure could be far higher, potentially $400m, $500m."

Glitzy offices

The second case examined by the Money Programme concerned Pacific Continental Securities, an investment company based in the City of London.

Pacific Continental has links through intermediary companies with the firm that scammed Dr Ashley. And it has many of the characteristics of a boiler room.

Simon Mitchell from Sussex lost 45,000 on Regulation S shares bought through Pacific Continental. He fell for the bait during a visit to the firm's impressive seventh floor offices in a glitzy tower block near St Paul's.

"The place was buzzing. Every terminal was manned," he says. "There were people standing up doing the buy-buy-buy, sell-sell scenario.

If every consumer was willing to hang up the phone... the menace of boiler rooms would be dead and gone
Jonathan Phelan, Financial Services Authority

"And I thought to myself, Simon, you're looking to build a relationship with a financial broker who's going to help you make good money."

But for Simon and many others, it all proved to be a facade.

Stephen Alexander is a lawyer who is helping people who lost money through Pacific Continental and has calculated the scale of the problem.

He says: "We've had in over 2,500 written complaints regarding the sales practices and the mis-selling carried out by Pacific Continental. The losses, potentially, are running into hundreds of millions of pounds."

The owner of Pacific Continental denied his company had done anything improper and claimed that the UK financial regulator, the Financial Services Authority, was aware of the firm's business practices and raised no objection.

Nondescript HQ

The third case examined by the Money Programme involved a company called Newbridge International, based in Barcelona.

Bob Walker from Darlington bought about 5,000 of Regulation S shares in a life sciences firm recommended by Newbridge International. He bought half from Newbridge and half direct from the life sciences company. They too proved unsaleable.

Although its website gives the impression it is based in a glitzy skyscraper, the only address it gives out is for a PO box number.

Staff at Newbridge International in Barcelona hide their identity when confronted by Money Programme cameras
Newbridge International staff were not keen to be identified

The Money Programme eventually tracked the operation down to a nondescript building in Barcelona.

Newbridge insisted it warned investors that its investments would be high-risk and that the shares they sold were Regulation S.

But investor Bob Walker said he received written warnings only after he had paid for his shares.

DCI Bob Wishart had this warning for investors about boiler rooms: "Their incentive is purely down to extracting as much money as they can from every individual they can, and moving on."

And Jonathan Phelan of the Financial Services Authority says: "If every consumer was willing to hang up the phone and recognise what a boiler room was, then the menace of boiler rooms would be dead and gone for ever."

When it comes to fantastic sounding investment schemes, it seems that the old adage is as true as ever: if something appears to be too good to be true, then it probably is.

  • City of London Police is responsible for co-ordinating Operation Archway, the national intelligence reporting system for boiler room fraud. If you think you have been a victim of this type of fraud, visit the City of London Police website at: www.cityoflondon.police.uk
  • The Money Programme: The Great British Shares Swindle, BBC2 at 1900 on Friday, 21 March.




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