The 'billion pound' share swindle

Simon Gompertz explains how a boiler room works

By Simon Gompertz
BBC Working Lunch

An insider has told BBC2's Working Lunch of 500 Spanish boiler rooms targeting UK investors, as police brand it the biggest fraud threat to households.

An experienced boiler room dealer has warned that the UK has wildly underestimated the danger from foreign-based scamsters touting dud shares.

The dealer, who has asked to remain anonymous, has been working in Spanish boiler rooms for several years. He told BBC2's Working Lunch that, "it's a billion pound industry, every year."

MOST ACTIVE BOILER ROOMS Aurum Astrum Barclay Hoffmann Barringtons Asset Management Bayer Investments Legacy International Total Asset Management Source: Financial Services Authority

"The average shop, if you're a decent shop, you're writing a million a week," he said.

"If you're good at it, the money is endless."

Sophisticated

Boiler rooms are staffed by teams of salesmen who cold call unsuspecting investors to offload worthless investments. They use a mixture of telephone bullying and sophisticated sales tactics gleaned from legitimate business.

Working Lunch viewers Ken and Barbara Fudge from Dorset are among the thousands who have already been targeted this year. They paid £40,000 to a share salesman who phoned out of the blue from Luxembourg.

"People have got to watch what they're doing," warns Ken.

"I've just been stuck for forty-odd thousand. Other people could be stuck for a lot more."

"It's like having your house broken into and they've taken everything you've worked for," adds Barbara.

A loader

Barbara and Ken Fudge lost £40,000 to scamsters based in Luxembourg

It is a criminal offence to sell shares to UK investors without being authorised by the Financial Services Authority (FSA). And it is likely to be a fraud to misrepresent the value of worthless investments.

The BBC's informant paints a lurid picture of the inner workings of a boiler room, with salesmen backed up by a sinister species of experienced trader nicknamed a loader.

"What these guys will do is just rip them apart," he explains.

"You might take them for ten grand, then four weeks later, a loader's just got half a million off them very easily."

No value

The boiler rooms buy shareholder lists with names and numbers of potential victims. Then they smooth talk them over the phone for days or weeks.

"Usually, it's a three call close: the open, the warm and the deal," says the boiler room dealer.

The investments sold are often obscure US shares that have little or no value and cannot be sold on.

The boiler room informant says it's a "billion pound" industry annually

The FSA has estimated total annual losses to boiler rooms at £200m.

But City of London Police, who coordinate the British effort to bring the perpetrators to justice, agree that the true total is likely to be much higher.

Iceberg

"It's the biggest thing we're having to deal with as a collective fraud," reports Steve Wilmot, head of the economic crime unit at the City of London force.

"We have piles of letters from distraught people."

Steve Wilmot calculates that UK losses to boiler rooms exceed the size of all fraud on plastic cards and are well over half a billion pounds.

"I've never seen anything like the trauma," he says.

"It's the biggest single financial threat to middle England."

The FSA sticks by its £200m figure, which is based on the number of complaints that come in every year.

"We're guessing at the iceberg under the water," comments Jonathan Phelan, the FSA's head of enforcement.

"If somebody else guesses at a higher figure, it's difficult for me to quibble with that," he says.

"Stopping it is nigh on impossible...the beast is too big. You cannot cut the head off something like that" Anon boiler room dealer

Small dents

Earlier this year, the City of London Police helped in a swoop on a Florida boiler room with 15,000 victims. And the FSA managed to retrieve £1m sent by UK investors to Canada.

But these are small dents in a bogus industry that Working Lunch's source claims is becoming mind-bogglingly large.

"I know one of our old owners. He's about 28, 29, worth maybe £50m," he says. "There are absolutely silly amounts of money: last year I took over a hundred thousand, cash."

He puts the number of boiler rooms operating in Spain at between 300 and 500. They move and change names regularly, so it is hard to be precise.

"Materialistic"

As for the investors who have lost thousands of pounds and view him as a criminal, he reflects: "There's nothing I could say that would apologise... what we do is not nice."

Share fraudsters are motivated by high salaries, says boiler room informant

"The people who do this, we're materialistic. There's too much money. People aren't going to just stop doing it," he adds.

Investors should take heed of new methods the boiler rooms are starting to adopt. They are forging ties with UK authorised investment firms to provide sham reassurance to the victims.

And they are coming up with new investments to sell. The latest are "cloned" shares, phoney shares in well known companies such as Google and Microsoft.

"Stopping it is nigh on impossible," the dealer tells Working Lunch.

"The beast is too big. You cannot cut the head off something like that."

Have you been affected by share fraud? Do you have a view or comment on this story? Get in touch with Working Lunch via email now.