Boiler room shares scams con UK investors out of £200m a year...

Despite all the warnings about cold callers luring investors into phony get-rich-quick schemes, boiler room scams still spell danger.

Boiler rooms – illegal high-pressure sales operations pushing overpriced and even non-existent shares – rip off UK investors to the tune of around £200m a year, with many victims parting with five-figure sums.

But as many wise up to their tricks, thanks to warnings issued by the Financial Services Authority and other bodies, the fraudsters are changing their tactics in an attempt to stay one step ahead of the authorities.

Boiler rooms usually involve financially astute individuals working in offices set up as call centres either in the UK or abroad – many are in Spain and eastern Europe. Sometimes there is a fake UK address to reassure people. Their modus operandi is to cold-call, often using so-called "suckers lists" of vulnerable individuals, and persuade them to buy shares in companies, sometimes backed by glossy fake websites, spurious press releases and fictitious shareholder meetings.

Last week the FSA secured its first criminal conviction for boiler room fraud, with David Mason jailed for two years after he set up an investment vehicle called EduVest to lure people to buy shares. The City watchdog said boiler room crooks pose a "major menace" to the public.

Their aim is still the same – to steal as much as they can from unsuspecting investors who believe their rapid-route-to-riches routine – but here are three new tricks:

'Cloning' the FSA register

Always check its register before dealing with anyone who is trying to sell you shares, to see if they are authorised to do so. But some boiler room "salespeople" are trying to get round that by claiming they are on the register early on in the call. They are not, but they steal details of legitimate individuals or firms. It's called cloning, and the FSA admits it is a growing problem. Here are some recent examples.

• A boiler room called Worldwide Risk Consultants called investors in April and volunteered its FSA registration number before trying to sell over-priced (and probably non-existent) shares. The name and the number provided are both on the register, which includes EU firms which can operate in the UK via a "passport".

However, they were both stolen from a legitimate German firm involved in re-insurance which has nothing to do with investment.

In April, the FSA issued an alert to warn people about Worldwide Risk Consultants.

• Around the same time, a "Kerry Duffain" phoned investors from Weizmann & Young saying she was based in London. She assured them she was FSA registered and gave her FSA number. The FSA number was that of a Kerry Duffain. Everything checked out – except a deeper reading of the FSA register would have shown that the real Kerry Duffain was a senior person at London hedge fund group, BlueCrest, which has no relationship whatsoever with Weizmann & Young.

The real Duffain, a victim of identity theft, has been made aware of the impersonation and has notified the authorities. Weizmann & Young is on the FSA's warning list of unauthorised overseas firms operating in the UK.

• A few days later, Weizmann & Young called again. This time a "Margaret Johnson" gave an FSA number, telling the investor that "Duffain" is "no longer part of our team" as "she had to go back to the country to look after her mother". The FSA register has a Margaret Mary Johnson with the number quoted. But this Margaret Johnson does not appear to have worked in financial services since 2002. A third Weizmann & Young operative claimed he was Joseph Freeman. A real person of that name worked briefly in financial services at Renaissance Capital in 2007-08; his current status is given as "inactive".

Using real companies

Boiler rooms have started spinning stories involving genuine large companies to persuade you to part with cash. FSA fraud fighters are still scratching their heads over their real goal, but strongly suspect all investors get is a forged share certificate. And by the time they realise it is worthless, the boiler room will have long moved on.

• AZ Markets, which gives an address in London's Canary Wharf and an 0845 phone number, was pushing shares in the recently floated commodity group Glencore in May. It recommended the company in a way that would have reddened the faces of the most optimistic directors – it promised variously that the shares would go quickly from the 530p flotation price to 860p or £10 or £14.

In fact, Glencore shares disappointed on launch, and late this week were at around 470p.

• Gevab Europe gives a false address in Fleet Street, London, and falsely claims a prize in the Daily Telegraph Wealth Management Awards. Along with Sino Trade Europe (which is on the FSA warning list), it has also tried to sell Glencore shares. All these Glencore pushers claim FSA legitimacy via European firms.

• Shares in ITV were pushed by Worldwide Risk Consultants at 95p in April. It claimed the share price would increase rapidly. They are now worth around 66p. ITV said it was aware of the scam. Worldwide Risk Consultants also tried to sell shares in Tullow Oil at £16 in March, promising they would rapidly hit £20. Tullow Oil stock was this week changing hands at just over £12.

The Frankfurt factor

When people buy shares, one of the key bits of information is whether the company is quoted on a reputable stock exchange. New York and London are highly rated for transparency and tough requirements.

Frankfurt is well-regarded, too – it's the home to world majors such as Adidas, Daimler, Deutsche Bank, Munich Re, Siemens and Volkswagen.

So boiler rooms now often say a company is "quoted in Frankfurt" or "about to list in Frankfurt". But while they imply the same standards, they are talking about the Frankfurt Open Market (also known as the regulated unofficial market) – the closest Europe comes to a wild west market.

The Open Market's listing requirements are light touch. There are no asset requirements, so firms can list with little or nothing on the balance sheet, there are no revenue requirements, and there is no need to publish audited accounts or even state how many shares are in issue.

• Pinnacle Financial Group, seemingly based in Berlin but using an 0845 UK number (and no relation to a large number of UK firms with a similar name), has been promoting a firm called Nazca Mining to UK investors. Nazca has a part interest in two Peruvian mines.

In March, Nazca said it was about to list in Frankfurt. In May, Pinnacle said it would list later on that month. It has not yet done so. This week, the Nazca Mining website stated that it was "in the submission process of listing on the Frankfurt Stock Exchange", adding that it "is looking for listing late June".

• Switzer Capital, whose contact details show a Frankfurt address, has been pushing Eldora Gold Resources shares to UK residents, as has Fisher Capital (no relation to the legitimate UK company of the same name) and Shaw Capital, which both operate from South Korea.

Fisher Capital and Shaw Capital are both on the FSA warning list. Eldora says on its website that it is "currently listed on the Frankfurt Stock Exchange – Open Market".

http://www.guardian.co.uk/money/2011/jun/24/boiler-room-shares-scams