Watch Out, Are Fraudsters About?


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As another team of fraudsters have been arrested for scamming retirees out of their savings, this is a good time to remind readers that in spite of increasing regulation the dangers of being defra

As another team of fraudsters have been arrested for scamming retirees out of their savings, this is a good time to remind readers that in spite of increasing regulation the dangers of being defrauded still exists. Frauds can range from deliberate misrepresentation through to outright theft and it can be easier to get taken in than you may realise ? even experienced investors are caught out. It is important to only take investment advice from trustworthy and regulated companies and always remember, if it sounds too good to be true, it probably is!

In March, Robin Pope was found guilty in a US court for running the UK?s largest ?boiler room? scam so far. Along with six accomplices he used high pressure phone sales tactics to persuade over 2,300 retirees into buying fake shares and options. One victim lost ?800,000 to the scam. They are believed to have made ?100 million out of the scheme.

In the latest case 15 Britons and two Germans were arrested in Mallorca at the end of May for a similar scam. Although it operated out of the island, it targeted investors, usually wealthy retired people, in the UK through cold calls. The fraudsters promised high returns on worthless or non-existent shares, using fake company websites to back up their story.

Between 300-400 individuals are thought to have handed over around ?4 million to the conmen, who were living ?lives of luxury in the sun? from the scheme, according to detectives leading the investigation.

Unfortunately these are not isolated cases and the UK Financial Services Authority (FSA) estimates that share fraud costs the UK around ?200 million each year. In a 2006 survey it found that victims lose an average ?20,000 each. The majority are men, aged over 50 and most of them claimed to be experienced investors.

Towards the end of last year the FSA recovered one of the biggest ever ?master lists? used by boiler room fraudsters, containing the names, addresses and telephone numbers of 49,000 investors and potential victims.

The FSA warns that they often sound like ?the real deal so it?s easy to be drawn in by their professional and high pressure sales tactics?.

Boiler room scams involve people who pretend to be stockbrokers. They are not regulated by the FSA or other national regulators to sell shares. They persuade people to buy shares which turn out to be non-tradable or overpriced shares or do not even exist. They make contact by phone and can be relentless. They appear knowledgeable and professional.

The name stems from the days when cocksure telemarketers rented cheap office space in the basement next to the boiler room. Today they tend to operate out of countries like Spain, the US, Switzerland and Eastern Europe, away from the regulatory authorities.

Another common type of financial fraud is the Ponzi scheme, named after Charles Ponzi, one of the greatest swindlers in US history. They promote very high returns with no risk. Initially the fraudsters running these schemes give investors very attractive returns to encourage others to invest. Behind the scenes, however, the money is not being invested and the returns are being provided by giving investors their own money back. Once the fraudster has built up sufficient funds they typically run away with the money leaving investors with nothing.

There are no free lunches and if anything looks too good to be true, then it probably is. It is really not possible to generate high returns from something that is low risk. If a low risk investment is promising high returns, this usually means it is either higher risk than you realise or you will only ever receive low returns.

Some simple rules to avoid the potential of being defrauded:

? If the return being promised is higher than comparable investments, there is a probably a catch. There is no such thing as financial alchemy.

? Ask the broker or adviser who they are regulated by and then check this directly with that authority. Only ever deal with authorised and regulated companies and advisers such as Blevins Franks.

? Only ever transfer your money to an authorised institution or trust company.

? Never transfer funds to an unauthorised company who say they will invest it on your behalf into an authorised company.

? Never give personal details or bank account information over the phone.

? Make sure you understand the investment.

? Do not be tempted by get rich quick schemes, or at the very least keep your eyes open and limit the amount you invest.

All investments have some level of risk attached to them and the potential returns usually relate to the level of risk taken. There is no such thing as a free lunch. An investment promising quick very high returns will have a very high level of risk and can easily end in financial disaster. It is far better to put your money into proven investments, placed through a trustworthy adviser such as Blevins Franks. It is also important to make sure that your portfolio is well diversified so that the risk is spread out as much as possible.

By Bill Blevins, Managing Director, Blevins Franks

8th June 2011

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.