Experienced investors are most common boiler room victims

The FSA surveyed 105 members of the public who called the consumer helpline because they had fallen victim to investment scams, known as boiler rooms. These scams, which are based outside the UK, involve high pressured selling techniques to encourage UK investors to spend considerable amounts of money on worthless shares. Once the boiler room has taken investors' money it may vanish and reappear under a different name.

The survey found that the majority of victims who called the consumer helpline were male (87%). Most callers were aged 35-55 (44%), however a large percentage of calls were from people over 55 years old (42%). Although callers had a variety of backgrounds nearly 30% were professionals or directors. The survey also indicated that those who are retired are also vulnerable to investment scams, making up 22% of the calls.

When asked how many years of investment experience they had, 41% of callers answered that they had been investing for over 10 years. Only 12% had never made an investment before.

The FSA consumer helpline receives approximately 100 calls each month concerning boiler rooms from members of the public. This survey was conducted over the summer of 2004.

Andrew Procter, director of enforcement at the FSA, said:

"These figures dispel the myth that it's just the novice investor who falls victim to investment scams. It is clear that professionals who have been making investments for many years are also particularly vulnerable. Anyone who is considering making an investment should remember; if it sounds too good to be true, it often is."

The FSA is currently aware of 113 unauthorised investment firms, which operate from overseas and are targeting UK investors. The FSA advises members of the public, who are considering making an investment with a firm, to gather as much information about the firm as they can in order to make an informed decision. This should include checking on the consumer website if the firm has been authorised by the FSA.

People investing with unauthorised firms do not have access to the Financial Services Compensation Scheme should they lose their money and are not able to complain to the Financial Ombudsman Service.

Case study of an investment scam

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.

The boiler room phoned him out of the blue:

"They caught me at a time when my pension fund and other savings were not doing well but I knew people who appeared to be making a success of their investments. I thought this could be my quick win.

"The firm wanted to prove their expertise to me and establish a long-term relationship. It appeared to be a genuine operation."

His first investment was 6000 of shares in a stem genetics business that was about to float in the US. He was promised over 50% returns and agreed to make three further investments with 'very promising' US companies.

"They had a very professional approach and always gave me consistent information, referring to previous conversations that we'd had. I refused to accept that I'd got myself hooked into something that wasn't working. I watched each of my investments explode and even bought my wife a new car on the strength of these expected gains.

"Although the shares were being sold by people claiming to be in Japan, I wasn't sending my money anywhere near these people or Japan. I thought I was sending it to the companies themselves in the US and I continued to invest as an expression of my confidence. "

"It wasn't until I tried to access my money five months later that I realised it was a scam. I couldn't get hold of any of the people I had dealt with and I soon discovered that it was a fraud. The companies were fronts and the shares were worthless. I believe a group operating in the States had done false share deals to make them appear valuable. I had lost everything.

"I continue to get calls from boiler rooms offering me deals. Needless to say, I'm wise to them now but their very convincing stories must be catching new victims."

Notes for editors

1. For more information about investment scams and advice on what to consider when making an investment, visit our consumer website.

2. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.

3. The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.