According to the Financial Services Authority (FSA), at least 100 companies are known to be targeting British investors with boiler room scams.
They are so named because they employ people to cold call unwary investors. The "sales force" is usually housed in a sweaty, cramped room where conditions are almost unbearable - just like working in a boiler room.
Boiler rooms are not authorised by the FSA and act illegally by selling and promoting the sale of shares in the UK. In the majority of cases, the shares being sold are worthless and the boiler room vanishes, leaving the investor out of pocket.
The company whose shares are being traded may be an innocent victim.
According to the FSA: "In a typical scenario, a boiler room would approach a small UK company and propose to raise capital by selling £100,000 worth of shares in that UK company on their behalf. Of this £100,000, the boiler room would take 60 per cent as their fee, leaving the small company with £40,000 capital. In reality, the boiler room will cold call UK investors to sell the shares at anything from ten to 100 per cent over and above the agreed price, take their fee and vanish."
The FSA's powers are limited because they are usually based overseas, although many use a British forwarding address. This also leaves investors unable to claim compensation from UK organisations.
Not all scams are the same. Some boiler rooms use pressure- selling techniques promising huge returns for shares of little value, while others offer shares that don't exist.
Call the FSA helpline on 0845- 606-1234 for more information.
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