I have been contacted by a financial adviser who wants to sell me some shares which apparently are' under the radar of the stock market' and are 'set to fly'. Do you have any thoughts? I can let you know the name of the two shares they have said are well worth it.
The financial services industry is highly regulated in the UK. That doesn’t mean some things don’t make their way through the system as the unscrupulous will still find their way. However at least the illegal behaviour means they will be compensated appropriately in a locked away environment when they are caught. We have had numerous calls from readers to this effect, but, in short, you should stay well clear of them. For other readers benefits I have not disclosed the name of the two shares but in fairness it could have been any.
The FSA have just announced they have found a master list of nearly 50,000 people who could be potential victims and could have been offered the worthless shares. If you are on the list, the FSA will be writing to you shortly to let you know you are on there, but everyone should be vigilant. It is all too easy to fall for a get rich quick idea. The FSA has already contacted 96,000 people so far this year and estimate that if one in ten people they contact don’t use the aforementioned boiler room scams, they would avoid an incredible £96m rip off. That is astonishing.
So how does it work? Firstly, no self respecting regulated financial adviser would ever, ever prostitute themselves via making cold calls out to people, and furthermore, it is against the FSA regulations to cold call for most financial products, so if you are receiving a call, consider a bacon sandwich a higher priority.
Boiler room scams can list a share on a false index, or can sell you non tradable shares, or shares that are overpriced. The strategy is to get you to buy the shares and you will either have purchased a bucket of frogs, or alternatively, a share they have ramped through the roof. Ramping involves the individuals who are selling the shares approaching newspapers, online forums et al and 'talking up' the share.
Typically, the online seller will at first have contacted lots of people, will then have ramped the share up via websites and will then contact you again to say ' you see what you have missed out on'. No-one wants to lose. At that point, keen not to miss out on the obvious winner, you make the purchase. You will either buy something that doesn’t exist as it’s a false index you are staring at, or alternatively you have bought a share they then dump and separately sell short. Sell short means they bet it will fall.
If you are approached, check the share with a respectable stockbroker or a fee based Independent financial adviser who will be able to guide you. The FSA also has a section on its money made clear website which should assist.
As the companies operate from Spain, Switzerland, Dubai, Japan, Bermuda, or the U.S. they are not within the FSA's remit so all the FSA can do is warn you.
They will probably have a UK listed address in London and a very pretty name, and the number will often be UK listed but it is routed around the world a few times so its not traceable.
I had one call me at work. Think of my company name: Worldwide financial planning. You might think he would have hung up? Even after 25 minutes of me saying I am not listening and carrying on with my work with the phone lay on its side, he continued. They are very plausible and highly forceful. I then referred to the website and to my relationship with the FSA and the FT group.
They haven’t called back.
If you have been called you can contact the FSA's contact centre on 0845 606 1234.
Sources: FT Thisismoney
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