There are many different types of investment fraud. One method on the increase involves corrupt organisations called ‘boiler rooms’, where groups of criminals or scammers target investors through the promotion of schemes or products that are overpriced or do not exist.
Research carried out by the FCA indicates that the largest individual loss from such a scam is in the region of £6 million, with seasoned investors amongst those caught out.
Scammers tend to employ a cold-calling model, in which unsuspecting investors are contacted by the criminals who are using sophisticated tactics, often offering to buy or sell an investment in a way that will bring a huge return.
There are a few signs you can look for in order to spot a boiler room scam. They include:
- high pressure sales tactics that can be pushed through a variety of mediums, including email, post, seminar or word of mouth;
- emphasis on the short-term availability of a deal to pressure investors into a quick decision; and
- an incentive for the investor, such as a free research report on the scam or another investment, a gift, or discounted dealing charges.
One tactic frequently used by those perpetrating the boiler rooms is the cloning of another firm or brokerage, often one that is a legitimate provider of investment services and authorised by the FCA.
The boiler room uses the real firm’s name, Companies House registration number and the addresses of any firms and individuals who are FCA authorised. The website is usually copied like for like, with subtle changes made to the contact details, which are swapped for those of the scammers.
It is important to remember that you can protect yourself from the scammers. The key measures are:
- you should only deal with financial services firms authorised by the FCA – to determine whether a firm is authorised you can check the register;
- you can check a firm isn’t a boiler room by asking for the Firm Reference Number and contact details and check these against the register;
- you should seriously consider seeking financial advice or guidance before investing – speaking to others can be a valuable step in your due diligence; and
- when reviewing a new investment opportunity, you should check ScamSmart and the FCA Warning List.
Be wary of anyone who contacts you out of the blue and don’t be rushed into making any investment decisions.
If you do get scammed or you have already invested in a scam, you can report this to the FCA Consumer Helpline on 0800 111 6768 or by using the online reporting form.
You should also be wary of any potential follow-up scams that may be completely unrelated to your initial investment, which may arise through the sale of your personal data by the boiler room to other criminals.
If you have any concerns about a potential scam, contact the FCA immediately. You can also contact Action Fraud on 0300 123 2040.
Pension liberation is another fraudulent practice, and involves the accessing of a person’s pension scheme before they turn 55 (57 from 2028). This is known as the ‘normal minimum pension age’ (NMPA).
There are certain circumstances where a pension scheme can lawfully be accessed before this age, such as where the member is forced to retire early due to ill health or has been medically advised that they have 12 months to live. Some pension schemes have a lower retirement age (known as a protected pension age), usually where the member is a sportsperson and likely to retire before reaching the NMPA.
Pension liberation takes place when the member, or a fraudster on the member’s behalf, accesses the pension scheme, often promising that they can do this without having to pay the usual penalties associated with an unauthorised withdrawal – essentially any withdrawal that falls outside of the circumstances already mentioned.
The tactics generally fall under one of two possible guises: a bogus investment like a boiler room scam or a transfer to a bogus pension scheme with the intention of withdrawing the funds. What happens next will depend on the generosity of the scammers.
As with other types of investment fraud, the scammers will often offer incentives such as personal loans or cash kickbacks in order to tempt you in.
If HMRC discovers the unauthorised withdrawal, you may be hit with a tax bill of between 55% and 70% of the amount withdrawn and your scheme administrator will also face a scheme sanction charge of up to 40%, so there are potentially seriously harmful implications of liberating your pension.
You can avoid pension liberation by taking similar steps to the ones you would with boiler room scams, by being wary of cold calls or other unsolicited contact. You can also report any concerns to Action Fraud on 0300 123 2040.
There are also other steps you can take, such as:
- contacting the Government’s Pension Advisory Service on 0800 011 3793, which will give you free impartial telephone guidance;
- checking the details of anyone providing you with financial advice on the FCA register; and
- contacting your pension scheme administrator with the details of any pension schemes or investments that have been advertised.
Again, taking your time with all financial decisions is crucial and sharing personal financial information with someone you don’t trust is not recommended.
Boiler rooms: fca.org.uk/scamsmart/share-bond-boiler-room-scams
Pension liberation: gov.uk/guidance/pension-schemes-and-unauthorised-payments#pension-liberation
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