What to do if a stranger rings you with a hot share tip

By Markets Editor Andrew Van Sickle Aug 15, 2006

Andrew Van Sickle

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“One of the hardest lessons of investing” is not to succumb to greed, says Cliff d’Arcy on Motleyfool.co.uk. But many investors do, which is why there are so many ‘boiler rooms’ out there.

A ‘boiler room’ is a scam where a firm telephones investors (having found their numbers in business directories or shareholder registers) and coaxes them to buy worthless shares by providing misleading information. Boiler rooms are disguised to resemble a genuine investment opportunity, but their sales patter and authentic-looking websites are a front for criminals and money launderers.

It’s not just investment novices who end up buying suspended, or non-existent, shares: according to the Financial Services Authority (FSA), nearly 50% of victims have been trading for over ten years. The average loss is around £20,000. Variations on the boiler room include calls purporting to help you reclaim lost money and an apparent offer from a firm to buy its shares.

“Alarm bells should instantly ring” if you are called out of the blue, says Michael Clarke on Thisismoney.co.uk. Why would a stranger favour you with a hot tip? Note too that the firm will typically be based overseas as it is illegal for UK-based firms to cold call investors to sell them shares. A quick check of the FSA’s register on www.fsa.gov.uk will show whether the company is authorised or not; if it isn’t and you do fall for the scam, the
FSA will not be able to help you get your money back.

Sometimes the fraudsters offer to provide you with research for stocks they know you own, which reputable companies occasionally do too, says Dan Oakey in Investors Chronicle; ask for contact details, as the fraudsters will be reluctant to provide anything beyond a mobile number. Once you have an address and phone number, research the company – a Spanish address is a dead giveaway – and check the FSA’s list of unauthorised overseas companies operating here, although remember that boiler rooms keep changing their names. Keep in mind too that websites are easy to fake. If the con men keep pestering you, “tell them to put it all in writing and send it to the FSA’s address”.

Published in How to invest | More articles by Andrew Van Sickle

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