Boiler Rooms and Recovery Room Scams

Boiler rooms - the theme of a film of that name six years ago - try to persuade investors to buy shares, but there are also scams involving options, futures and currencies. Some offer shares that promise huge returns but turn out to be worthless; others sell shares in companies that do not even exist. Scamming people for money using the psychology of greed (which we all have in us to a certain degree) is most probably as old as prostitution. 500 years from now it will still be going on and I bet the foundations will be basically the same.

Boiler Rooms - The Victim (Angel) and the Demon (Broker)

What is a Boiler Room?

The term 'boiler room' originates from a time when pushy telemarketers would rent cheap office space in the basement of buildings. These offices were often close to, or actually in, the room where boilers were situated -- hence their name. But today, a boiler room is a general term that refers to unregulated companies that use high-pressure selling tactics to flog dubious shares by providing false or misleading information.

Basically a boiler room is a place full of salesmen (con men really), who are unregulated, and will cold call you to try and tempt you to part with your money and invest in some "amazing" company which will make you a millionaire. The stocks are usually unlisted and therefore difficult to sell once you have bought them. In reality they are likely to be worthless.

They tend to target people who already own shares, and will get your phone number/contact details from lists that they have bought, including shareholder lists.

More often than not, they are based overseas. Whatever, you should NEVER deal with them, and NEVER deal with anyone who cold calls you from a company who you have never dealt with before.

Another boiler room scam are the newsletters (TODAY'S TOP PICKS!!!). The just got hit with a big fine for their pump-and-dump act.

Also, any company with the word 'Global' in its name, especially a financial one is a company best avoided. Case in point Argos Global Equities. Trade on fundamentals, not news. Make sure there is sufficient daily trading liquidity, otherwise the market makers are calling the shots. There is no way in hell I would buy a stock based on an unsolicited phone call, email, etc.

Another scam targeting people 'of a certain age' revolves around manipulating people to invest in "Regulation S" shares (These are junk (?) shares that are too risky to be sold in the USA but can be pushed to foreigners like us). Regulation S shares come with the secondary scam of a smooth talking lawyer contacting the victim and offering to take up their case and petition to have the shares made freely tradeable.

In reality, shocking as it may seem, anyone can set up a company and sell shares to the public in it, you don't need to be a broker, or to be in possession of a license, and as a result, you have absolutely no protection at all. If a company is genuinely going to float on an exchange, the issue would be handled by a brokerage house, the bigger the better from the company's point of view. Also, you would see at least some independent press regarding their imminent floatation. Selling stock in an unlisted company is not illegal, neither is selling it without a license, under these kind of circumstances, it is down to the individual to do their own due diligence behind the company promoters.

The Typical Boiler Room Victim

Neil - a 54 year-old victim of a boiler room 'broker' comments -: All I saw was an opportunity to invest in something risky but with a great up-side and the possibility of getting out if the share price dropped. They forgot to mention the shares were restricted until they had me well and truly hooked in. Naive - yes- but common to a lot of people with $$ in their eyes and little experience of share dealing.

And you're right - I've not seen a penny of the fantastic 'profits'


Profile Victim

If you are male, over sixty years of age, live in London or the South East, and have some experience in investing then you are a likely target for boiler rooms.

Thing to always bear in mind is that boiler room operators are very good at what they do -- persuade! According to the FSA 15% of victims were swayed to buy shares during their first call. And nearly half of the victims succumbed after they were called four or more times!

The FSA point out that boiler room salesmen often won't take 'no' for an answer. They will constantly call a target, trying to build a relationship and get their confidence. They will appear knowledgeable and highly professional but they are only interested in taking your money. Additionally regardless of whether they purchased shares, six out of ten targets were pursued for at least a month, and nearly a quarter said they were receiving calls from the same boiler room for more than half a year. That's enough to wear most people down.

These People will not take No as an Answer

Bligh comments...

My parents who are both in their 70s were recently cold called by Argus Global Equities Limited (from Nevis in the Caribbean) and they spent approximately 1 hour on the phone before convincing my father to invest GBP1500. They sent him the application forms by email which he was unable to open due to some virus restriction - this meant Argus had to post the forms. This gave him some time to discuss with myself about the investment and for me to do a bit of digging - after discussing with a financial adviser and forwarding him the resulting information he decided not to go ahead with the investment. Naturally, the sales person called back to check that my father had received the forms and was disappointed that my father was not going ahead with the investment but apparently quite pleasant about it - informing my father that he should keep an eye on one of the recommended stocks and that he should remember GBP1500 was not a large sum of money too invest.

I was firstly concerned that somebody would consider selling high risk investments to retired people in their 70s who can probably cannot afford to speculate this sum of money, and secondly if GBP1500 is considered by them not to be a large sum of money then it made me think that perhaps my parents would be asked to invest further sums in the future.

Having done a Google search I can not find any feedback from investors on this company. What are your thoughts on this?

Bligh this is what could have happened. Basically he invests £1500, the trade surprise...surprise... is a big winner (although if he decides to cash in there's a 99% chance he won't be able to get hold of the 'profit' let alone the original £1500).

So say the £1500 goes to £3000. Then he'll be told to invest in another stock which will likely be another great winner. Then comes the big play; 'Hey Mr Bligh Snr, am I a hot broker or what? All you've got to do gramps is listen to me and I'll make you a tonne of cash, but let's not play around with such small money anymore, how about putting up £20k or even £50k, just imagine what you can do when I double your money, and this stock ABC which we're about to get hold on is likely to go ballistic, they've just found a cure for cancer, are going to be the next google, have developed some new something etc...

Don't bother looking for feedback, get a check of both your and your father's greed (we all have it in us) and NEVER send money abroad especially to some tin pot crappy country in the Caribbean.

And of course the salesman all sound very nice and are very professional because these firms employ some of THE world's best salesman, Why? Because they can afford to as greedy suckers from the world all over are sending them multi millions of pounds a year. In fact I'd reckon these scammers together rake in between $100-$300 million of profit a year...

and if you want to report them to the FSA use this link

I have friends who have lived in South East Asia where a lot of the boiler rooms are located. They are very creative in how they do business. The way they acquire data bases will amaze you - bribing people in banks, 5 Star hotels, clubs, air lines, accountants, lawyers..........anyone who has access to lists of people with cash to spend are potential targets. Advertising in magazines is another way they do it and they get responses from people who are interested in investing.

They even create legitimate front companies in places like the USA or Europe and set up websites in order to create the image of the 'opportunity' they want to sell you.

Other places from where boiler rooms conduct business are the Philippines (a lot) South Africa (a large increase opening shop), Thailand (not so many these days), Indonesia and Malaysia (smaller operations). They exist in countries where they can bribe the relevant authorities which provides a layer of protection for them. I remember once meeting a guy who worked in one of these boiler rooms and he was proud of it - bought 3 houses with the money he made from robbing people blind and felt nothing whilst doing it.

The way to not get stung by these people is to only invest in shares of companies that are listed on large exchanges like the FTSE...etc. The next time someone wants to sell you pre IPO stock that is set to explode and you are tempted, then take that money to a race track, buy a drink and see if your horse wins - at least you have a slight chance of winning and have some fun whilst doing it.

Please don't kill yourself, we all live and learn, Treat this as a valuable lesson, to test things first in small quantity as well as to be more careful. Never get involved in anything you don't understand, especially when people you don't know call you out of the blue offering you easy money...

In closing, here is a posting from the now defunct IC Forum, circa December 2004. You will have to excuse the language, but the message is the same. Boiler Rooms HURT PEOPLE.

I don't know who Thickboy is, but this message has stayed with me ever since -:

"Because it looks like i'll have custody 

of my four offspring on the "every 

second saturday" deal that's been negotiated.

Yes, my wife has walked out........

thank you Sukumo ****ERS!!!!

I'll take some of the blame.....according

to my wife"'s not just the £43,000 

LIFE SAVINGS, but the trust (ouch), the lies (boot), 

the deceit (smack), the irresponsible nature 

(slap- doof- bite)...etc

The point is, it's not a sob story, it's 

****ing reality TV folks. A real life 

misery drama brought to us by the good 

people at Sukumo.

Merry christmas Carlucci, Newman, 

Ducheny, Wolfson and all the rest 

of the bottom feeding scum you've ever 

associated with.


I could cry.


Like many of you on here I get these pestering cold calls between 3 to 4 times a year. Mainly I just say no and hang up or come up with a ridiculous excuse (last week I told one of these pushy kids that I had just contracted bubonic plague and would he like to try back in 9 months).

So, next time you have a cold call...laugh at them. If at all he steers you into a conversation (you should not allow this - if you have...then, he has won the first round), tell him that you would like to be paid to listen to him. Ask for his credit card details. If he does not give it to you, put the phone down.

Also, to let these con-men know that we are wise to their scams, you should perhaps ask pertinent questions, such as:

  1. Ask them if they're regulated by the FSA? (if so, ask them for the registry number)
  2. Ask them whether the shares they are selling are restricted in any way (eg. Rule 144)
  3. Ask them if you can sell the shares at anytime (through another broker)?
  4. Ask them if they are based in the UK.
  5. If anything goes wrong would you be able to take them to court in the UK?
  6. Would it be possible to buy the shares from a UK based broker and then split the profits with them if any, for the tip?
  7. Does the company have a website? (I am sure it will)
  8. Are the companies accounts open to inspection on the web?
  9. How could you check the daily sales volumes of the company?
  10. If he is offering you the shares at say $3 per share, then could you place a buy order at $1.95 per share, for you might think that the value might dip before it actually touches the sky?
  11. Ask them if the call is from a boiler room.
  12. Ask if the shares might conform to Regulation S of the SEC, as you cannot sell these shares for 1 year anyway.

The list is endless but the guy may get the message.

Even if you did the folly of saying yes, you do not have to worry until you have given your bank details. Any UK court would throw their case out, but you can also tell them that they will have to foot your legal bill if they lost. THEY WILL LOSE.

Curious to know how these Con Stockbrokers Live?

One of the alleged masterminds is Michael Newman, a Briton, who based his operations in Laos, the South East Asian country sandwiched between Thailand and Vietnam.

His salesmen, who persuaded people from Britain, Australia and New Zealand to invest tens of thousands of pounds, were based in the former Brunei embassy, a palatial building with high gates.

Locals say that they did not fit easily into the charming, socially conservative city of Vientiane, the capital of Laos, situated on the banks of the Mekong river.

Foreigners tend to be backpackers who come to Laos to visit its Buddhist temples and shrines, but these people were different.

One foreign resident said: "Many were wide boys with crew cuts and tattoos. A lot of them sounded very East End. You just don't see people like that here. They were very scary.

"They started picking fights in bars. One time they broke a pool cue over the head of a tourist. Another time 20 of them sat with their shirts off in a popular restaurant with prostitutes from Thailand on their laps."

One drunken night some boasted about earning nearly £2,500 a week which was paid in cash, a huge wage for anybody living in one of the world's poorest countries.

Investors, such as Richard, a 40-year-old geological consultant who put in £50,000, were left feeling angry and humiliated after backing what they thought were small American companies.

He said: "It was very slick. Initially, they were not that pushy. I looked at the companies' websites, and it all seemed legitimate.

"I suppose you could say it was greed, but I thought of securing my daughter's university education, paying off the mortgage, even retiring a bit earlier."

They tell me that they don't need to be authorized by the FSA.

Quite simply they are liars. In the UK, it is illegal for a firm to provide investment advice and/or to arrange investments if they are not authorized by the FSA.

So why doesn't the FSA stop them?

This is one of those rare occasions where you'll read something positive about the FSA - they are trying their hardest! When the FSA become aware of a new boiler room they publish the details here

This list contains the names of unauthorized overseas firms known to be, or to have been, targeting UK investors. Investors should be aware that if they put their money with unauthorized firms they will not get the benefit of the UK compensation and complaint schemes.

I'm not sure, I think that these guys might be kosher.

Let me leave you with one last though then, a real example of somebody who lost £40,000:

"An investor contacted the FSA after losing almost £40,000 by investing in shares via a Japanese boiler room. The investor, a management consultant in his 50s, had been investing for 12 years."

Even hitting them with 'One thing that worries me is that you are not regulated by the FSA and are not authorized to operate in the UK' just brought the response 'Ah, but we are regulated by Swiss law, and that's even more strict.'???

This is irrelevant, they are providing investment advice in the UK and therefore have to comply with UK law and must be authorized by the FSA. Their failure to seek authorization from the FSA means that they are currently in breach of the law and thus acting criminally. Why would anyone want to sign a contract with a criminal?

How to deal with cold calls

You could get angry and shout at these people but that will only raise your blood pressure and that's not good for your health. Relax, laugh at them down the phone, tell them that you don't deal with illegal boiler rooms and hang up. If you find a more amusing way to tell them to get lost then please let us know.

Recovery Room Scams

In a Recovery Room fraud, scammers identify a collapsed or worthless company and they obtain a publicly available list of shareholders. They create the appearance of a credible company eg: through the use of a professional looking website. They then contact shareholders with the news that the shares they thought were worthless are sought after by a buyer who is willing to purchase the shares for a high price. In order to capitalise on this the shareholder is told, all they need to do is pay an arrangement fee or insurance deposit. Of course, if they part with the funds they will never see or hear from the buyer again.

The case about which we have recently heard about appears to involve an American company called Peterson & Jones. Individuals who say that they are representatives of this firm have contacted shareholders of at least two companies offering to buy their holdings at much inflated prices. Peterson & Jones are known to the FSA and feature on their list of unauthorised firms to be wary of. Please make sure you remain sceptical about offers that seem too good to be true as they probably are, and treat any unsolicited approach very cautiously.