Boiler room scams - international approach to tackle the fraud

25/11/2008

The first international boiler room conference was held in November as part of the FSA's drive to encourage greater international cooperation to this global problem. Boiler room scams, so called due to the highly pressurised sales technique used by the brokers, involve victims being cold-called by false stockbrokers and persauded to buy shares in worthless, non-existent or near bankrupt companies.

Criminals are said to make an approximate £300 million per year from the UK public. Firms operate in boiler room 'hotspots' such as Spain, Switzerland, Dubai or North America (therefore outside the remit of the FSA) whilst victims tend to be in the UK, Germany, US and Scandinavia.

In a speech to the conference, Margaret Cole, FSA director of enforcement, stated that the FSA's investigations to date had revealed the extent to which the crime is international: following the trail of victims' money often revealed complex webs involving several jurisdictions spanning several continents. In order to provide credible deterrence against the criminal operations, regulators and law enforcement agencies from around the world must work in partnership, share ideas and "form a strong alliance" in order to combat this "serious organised international crime".

According to the FSA's Head of Retail Enforcement, Jonathan Phelan, the FSA will take action against a 'boiler room' firm after received three complaints about such firm. He described the FSA's strategy to tackling boiler room fraud as being based on three categories of activity: [i]disruption, deterrence and discouragement (the "3D's").

Disruption could involve, for example, disabling the websites of the boiler rooms in question, (the internet provider would obviously need to be involved in the process) and is seen as a particularly important tool where the boiler room is operating outside the UK (and, thus, outside the FSA's jurisdiction).

Deterrence will be used where the boiler room operates in the UK: using its civil and criminal powers the FSA could restrain the firm's activities by way of injunction, freeze the firm's assets or, indeed, act to wind up the firm in question. Where possible, the FSA will also bring prosecutions and has done so in a number of recent cases.

Discouragement is key and the FSA, in association with various bodies including the Institute of Chartered Secretaries and Administrators (ICSA) and the Association of Private Client Investment Managers and Stockbrokers (APCIMS), and through various media campaigns, is working to warn shareholders of the dangers of participating in boiler room scams.

Contact: ritapadam@city-law.net

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