The Boiler Rooms
The boiler rooms operate both online and by telephone, typically from abroad. They are unauthorized by the Financial Services Authority. Their websites are slick and bold. They provide a phone number as well as an e-mail address, but a telephone approach will reach only an answer phone.

The promoter claims to be a broker or a bank, depending on which type of scam it is trying to pull off. Its name may sound like that of a big-name financial institution, giving it a ring of familiarity that will strike a chord with the gullible. Some of the fraudulent internet banks have claimed to be based in Jersey, Guernsey, or the Isle of Man, at street addresses that do not exist, much to the exasperation of local regulators.

The dubious brokers are expert at hard-selling shares in unknown companies, which, if they exist at all, are probably not generating revenue. The telesales people working for the outfit have the standard characteristics of the con artist. Most live as lavishly as they can, and an astute few save up to buy a comfortable early retirement, but they have in common that they are not interested in giving any kind of genuine service. In closing sales of shares on the telephone, they have the knack of conveying gravitas and the right sense of urgency. The dealers convey the unseen impression that they are sitting at a dealing deck in smart business attire but, in reality, they are lounging about in T-shirt and jeans.

The salespeople represent the stock they are pushing as a hot investment opportunity. Any who are stupid enough to send money to this outfit will lose every penny. The victims tend not to learn from their mistakes.

The outfit will refer you to a website representing the company whose shares it promotes. The site paints a glowing picture of the company, no doubt using every high-tech catch phrase, but it is a work of fiction. The company’s executives are given track records with named blue-chip companies and a business education at a world-class university. If you check with the organizations, you will find no record of the named individuals, but it is a hassle to do this and the fraudsters rely on you not bothering.

The telesales people are paid a commission on sales of between 10 and 60 per cent of money taken in, which is high. Once a salesperson has opened up a client, the lead is passed onto a loader, who proceeds to load the individual with as much stock as he or she is willing to buy, within as short a time as possible.

The stock on offer from the fraudsters is likely to be a classic pump-and-dump. This is a planned sales campaign which sends the share price artificially spiralling. The promoters will have bought shares earlier and made a huge profit from selling out high, at which point the edifice comes crashing down, leaving a vast majority of investors holding overpriced stock that they cannot easily sell.

Sometimes, the approach is not as subtle as this, but the fraudsters simply pocket the proceeds of any cheque sent in, regardless of what stock it was intended to pay for.

The crooks may represent their share-selling campaign as an IPO or private placing and invite you to subscribe early at a special price. The dealer may send out a prospectus. This will have some unrealistic profits and cash flow projections, and will be full of warnings. The company may have no revenues, let alone profits. But some greedy investors will not take the hint.

You will be in and out within a month, the broker may say, and promises clients a small profit – big enough to entice them, but not enough to make them suspicious. To release capital, some clients will empty their building societies and cash in investment funds. After buying the new stock, they will never be able to sell out, but it will not be immediately apparent. The broker will say clients should stay invested because of market conditions or the exchange rate.

The only market maker for the stock will be the broker who sold it. If the firm refuses to buy the stock back, it will be worthless. It may allow clients to sell out, only if they will reinvest in an equally dubious stock. Either way, the clients will never see the colour of their money. Before their hope is entirely shattered, the firm will push the dubious stock, and others like it, hard. It may launch dog-and-pony client evenings in top London hotels, and invite dupes into luxury offices for lunch.

You may ask how such a situation could be allowed to arise in the first place. An unscrupulous firm occasionally takes over a struggling but basically honest company whose good name it exploits. The new owner will stave off suspicious regulators and others as the firm rips off clients. The firm will eventually cease trading and the principals will skip the country, if they had ever been in it, leaving their highly paid management team, and probably others, to carry the can.

In dealing with these wide-boys, it is a case of Don’t ring us, we’ll ring you. They can and will reach you if you were remiss enough to give them your telephone number. If you ring them, your call is likely to be diverted from a UK line to Croatia, Costa Rica, or wherever else the outfit is hiding out. Your salesperson will be using a false name, often with an English upper middle class ring. Such tactics make it hard for any suspicious or angry punters to trace the fraudsters. The jurisdiction will have been chosen because local police are not much concerned about what businesses are doing if they are not targeting nationals. If the police start investigating, the telesales team simply bolts to another jurisdiction.

Every boiler room collapses but it often re-emerges under another name like a phoenix from the ashes. Following a collapse, a secretly linked outfit may approach the victims and claim to recover the money they have invested. The catch is that it will demand an upfront fee. Many fall for what turns out to be a second scam.

Other Financial Services Scams
Share and other financial services rip-offs have the same aim and are often run by the same people. Some are still peddling the notorious Nigerian 419 fraud. It is a type of advance fee fraud, named after the section of Nigeria’s penal code which addresses fraud schemes. The fraudsters will send you, the potential victim, an e-mail, typically but not invariably purporting to be from a Nigerian, which contains an ungrammatical but pedantically polite plea for help. The writer appears uneducated, a ploy designed to lower your guard. The request is to make temporary use of your bank account to deposit large claimed government or other funds in return for a hefty percentage cut.

Any who respond are asked to pay an upfront fee to release the cash, and, if they should demur, may be invited to complete the transaction in Nigeria.

If the hapless mark makes the trip, the fun and games will only have started. First, the mark will be fleeced of the fee and second, crooks claiming to be local police will inform the individual that it was a scam and demand a further fee to retrieve the funds. They are part of the same fraud and, if you play along, you will be throwing good money after bad. The 419 fraud is so well publicized that you should not have fallen for it in the first place. Victims are reluctant to complain because the proposition on which they had allowed themselves to enter negotiations was dubious.

If you want to know more about 419, there are plenty of websites to help you. My favourite is www.419eater.com because it publishes real-life scam-baiting correspondence, where the potential victim puts the scamster to enormous trouble and ultimately declines to part with money.

Another growing fraud is phishing, where the fraudsters trick people into revealing their bank account details and passwords, or similar sensitive information, by e-mail. They will send out e-mails that purport to be from a big-name high street bank and carry something that looks like its logo. The e-mail claims it is checking accounts, and it asks for your account details and password. If you oblige, as at least a few do, the crooks will empty your account.

The victims
Some of the victims may not understand what happened. For those who do, there is nothing much they can do to retrieve money invested. Some of the wealthier victims may themselves be money launderers and crooks, in which case they can be relied on not to kick up a fuss about their losses, at least in public. The vast majority of victims are ordinary people, with varying levels of financial resources. They have in common only that they are gullible and greedy. Even prominent businessmen can behave like children in a sweetshop.