All that glistens is not gold – beware of get-rich-quick scams!
IT IS amazing how many people are taken in by the perpetrators of get-rich-quick scams. Scams are abundant in the financial world and the old ones seem to come round again and again. What the unfortunate victims of these ruses have yet to learn, is that it is the established and proven investment vehicles that are more likely to bring pleasant returns, the ‘sounds too good to be true’ schemes that bring a nasty shock.
It is even more surprising then, that the majority of those duped into that old favourite – the boiler room scam – are, according to latest figures from the Financial Services Authority (FSA), men over 60 years of age, living in London or the south east of England, and who have some experience in investing. Perhaps it is because they are the main targets of the scammers, that they are weakened by the high pressure sales tactics, tempted by the promised high rewards, or because they believe their judgement is better than it really is, that they are the majority of sufferers.
The boiler room scam stems from the days when cocksure telemarketers rented cheap office space in the basement of a building, often situated in, or next to, the boiler room. Usually, once they had completed their scam, they would clear out and vanish, and be hard to find by angry victims. In 2006, the term boiler room refers to unregulated companies using persistent and unscrupulous sales people to sell dubious shares by providing false information. Often the shares simply do not exist or are worthless, the boiler room vanishes and the investors are ripped-off.
The people behind boiler rooms often move from operation to operation, taking lists of potential targets with them. They may also use marketing firms to contact targets on their behalf. Many boiler room victims are first contacted by the fraudsters, out of the blue, by telephone.
Boiler rooms are not necessarily situated where the operators say they are. The most common countries that boiler rooms claim to operate from are Spain (29 per cent), the US (20 per cent) and Switzerland (20 per cent). Anecdotal evidence also suggests that Eastern European countries are popular locations for boiler rooms.
A recent FSA survey revealed that victims of a boiler room scam lose an average of 20,000 pounds sterling each. Three of the people surveyed admitted to parting with over 100,000 pounds sterling. Regardless of whether they purchased shares or not, 63 per cent of the victims were called for at least a month, with 15 per cent succumbing at the first call, while nearly half were called four or more times before they yielded. Nearly 25 per cent said that they were still being pursued after six months. Out of the 100 participants in the FSA survey, 59 per cent had been taken in and purchased worthless shares, while 13 per cent admitted to being targeted by more than one boiler room operation.
The majority of the victims were men, 38 per cent aged over 60 and 26 per cent aged between 51 and 60. Most were experienced investors and had been investing for over a decade.
The FSA conducted the survey following around a 100 calls a month to its consumer contact centre, by people who had been approached by a boiler room set-up. The FSA is powerless to act if the companies involved are not authorised by them. As the companies concerned are generally based overseas, they are out of the reach of the FSA. Anyone buying such shares, or having any unfortunate dealings with a company unlisted with the FSA, will not be able to claim compensation.
Anyone in the UK can check whether or not a company is authorised by the FSA by contacting its Firm Check Service (www.fsa.gov.uk). Expatriates living overseas need to be even more vigilant because the country they are living may well not provide a similar service.
Head of Retail Enforcement at the FSA, Jonathan Phelan, said: “Boiler rooms can be lucrative operations that fraudulently earn serious money. Twenty thousand pounds sterling is a shocking sum, and far more than most people can afford to lose.
“Sadly, victims are unlikely to see their money again, because their shares will have been overpriced and nearly impossible to sell …. Our strongest tool is to make people aware of the scam. The message is clear; if in doubt don’t be polite, just hang up!”
The only people likely to get rich quick by boiler room scams are the swindlers themselves. In the real world, it is very unusual to be able to make a fast fortune on a genuine investment opportunity.
Most investment ventures have risk attached and the returns are relevant to the level of risk taken. A get-rich-quick scheme has a very high level of risk, one that can easily end in financial disaster. Medium to low risk investments might not sound so exciting or profitable, but held over the longer term they are worthwhile. It is far better to put your money into proven investments, placed through a trustworthy adviser, which will grow and provide income over the years. It is also important to make sure that your portfolio is well diversified so that the risk is spread even more thinly and where the returns are much more reliable.
Remember Aesop’s fable of the tortoise and the hare. It’s the sure and steady path towards your goals, which will bring success – and not hare-brained schemes!
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