Boiler Room Fraud & Allegations of Financial Misconduct
A boiler room fraud is one which induces members of the public to invest in shares, commodities or other assets which are grossly overvalued or potentially worthless. In many instances, these assets may not even exist, and the deception lies in presenting them as attractive and irresistible investment opportunities.
The sole intent of the perpetrators of the fraud is to persuade innocent investors to part with their money which will be immediately dissipated. In reality, there is little prospect of the money invested being recovered by an investor.
The items marketed as representing an attractive and potentially lucrative investment may take many forms ranging from, carbon credits and rare earth metals to shares in companies, land, diamonds and expensive whisky.
The team at KANGS has gained enormous experience from involvement in prosecutions of many such offences. It includes an example where targeted investors were offered shares in a company engaged in the alleged construction of a golf course, which failed to materialise.
John Veale of KANGS explains the nature of this particular form of fraudulent activity.
The Operation of the Fraud
The title of the fraud derives from its origins when it was largely conducted from basements and boiler rooms which were cheap to rent. However, the financial success for the boiler room fraudsters has seen such, premises are being upgraded to expensive offices and even private homes.
Those employed by the perpetrators generally work in an intense, pressurised sales environment.
Whatever, the nature of the commodity being sold, the general procedure will be similar:
- potential investors will be ‘cold called’ and offered an enticing investment opportunity. Customer contact details will be taken, no sale will be attempted at that time but the delivery of an explanatory brochure will be promised by post or email,
- brochures are typically, glamorous, glossy magazines containing subtle overstated promises of substantial financial return, alleging that it would be foolish for a potential investor to ignore the opportunity,
- shortly thereafter, the potential investor will receive a telephone call from an individual, frequently but bogusly, described as a ‘stockbroker.’ In reality, the individual will be a salesperson programmed to exert maximum pressure in order to conclude a sale,
- typically, a small investment will initially be sought by the ‘broker’ in order to gain the trust of the investor. The assumption is that nothing untoward will become apparent in the short term, thereby paving the way for potentially larger investments in the future,
- more often than not, the bogus broker will endeavour to develop a ‘special friendship’ with the investor, enticing trust in the ‘advice’ given,
- in some cases, fake share certificates or other form of alleged authenticity may be offered and issued,
- invariably, shortly after a successful sale, the bogus ‘special friend’ will encourage the investor to expand their portfolio and produce more money on as many future occasions as possible,
- the sold ‘investments,’ even if they actually existed, will not increase in value, because they never do,
- once the investor’s money has been banked, the ‘broker’ will have no further interest, other than to encourage further sales for as long as possible, probably until the investor realises that a ‘scam’ has been perpetrated,
- the individuals behind these scams, as a matter of course, will share or sell their contact lists to other boiler room fraudsters.
Avoiding a Potential Boiler Room Scam
Whilst an unsolicited telephone call remains the favoured approach, boiler room fraudsters also utilise email and ‘online’ tactics.
Anyone approached unexpectedly, by whatever manner, should:
- never be forced into proceeding with haste,
- be wary of any unsolicited offer,
- think about how and why they have been chosen for an ‘offer of a lifetime,’
- consider whether or not, the proposed ‘investment’ sounds realistic,
- research the credentials of any company names proffered and seek guidance from a trusted financial authority,
- never share personal information,
- if the offer sounds too good to be true, it will be.
Investigation and Prosecution
Allegations of boiler room fraud will generally be investigated by the police in association with other agencies, particularly, the Financial Conduct Authority and the Serious Fraud Office.
Boiler room fraud is generally governed by the Fraud Act 2006.
If the decision is made to charge the perpetrator(s) of an offence, there exists a range of different offences according to the nature of the alleged fraud. Amongst other potential offences, an offender may be prosecuted with one or more of:
- the common law offence of conspiracy to defraud,
- the offences provided by the Fraud Act 2006.
The Fraud Act 2006 states:
Fraud by false representation
A person is guilty if he dishonestly makes a false representation and intends by making that representation to:
- make a gain for himself or another or
- to cause loss to another or to expose another to a risk of loss.
A representation is false if:
- it is untrue or misleading, and
- the person making it knows that it is, or might be, untrue or misleading.
Fraud by failing to disclose information
A person is guilty if he dishonestly fails to disclose to another person information which he is under a legal duty to disclose, and intends by failing to disclose the information to:
- make a gain for himself or another, or
- cause loss to another or to expose another to a risk of loss.
Fraud by abuse of position
A person is guilty if he occupies a position in which he is expected to safeguard, or not to act against, the financial interests of another person, dishonestly abuses that position, and intends, by means of the abuse of that position to:
- make a gain for himself or another, or
- cause loss to another or to expose another to a risk of loss.
Sentencing Upon Conviction
The penalties for conviction are severe. Before a Crown Court, a defendant may face a fine, imprisonment for a term of ten years, or both.
Additionally, a Confiscation Order under the Proceeds of Crime Act 2002 is likely to be imposed, with the intent of recovering any benefit gained by the defendant from the proceeds of his crime.
Furthermore, a Director’s Disqualification Order is likely to be issued against any director or other officer of any company involved, preventing them from participating in the management of any company for a specified period of time.
How Can We Assist?
KANGS has extensive experience in defending both directors and employees who were unaware that their activities were not sanctioned by the Financial Conduct Authority (FCA) or that the commodities being sold were either worthless or non-existent.
If you are under investigation by the FCA or any other authority, our experienced solicitors can assist with the interview process, pre-charge investigation, and post-charge court proceedings.
Our law firm has a nationwide reputation for our expertise in assisting clients facing allegations of financial misconduct of every conceivable nature. If we can assist, our team would be delighted to hear from you. Please do not hesitate to contact us today using the details below:
Tel: 0333 370 4333
Email: info@kangssolicitors.co.uk
We provide initial no obligation discussion at our three offices in London, Birmingham, and Manchester. Alternatively, discussions can be held through live conferencing or telephone.
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