10 most common scams: Boiler rooms

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Angry business man yelling at phone

Stay one step ahead of the fraudsters with our series of articles giving you the lowdown on the scams they use to trick people out of their hard-earned cash - and how to avoid being taken in by them.

This week, boiler rooms, which target wealthy individuals and use hard-sell tactics to convince them to invest.

How does it work?

Boiler rooms, also known as share sales fraud, involve bogus stockbrokers, usually based overseas, cold calling people and pressuring them into buying shares that they promise will produce high returns.

In reality, however, the shares involved are either worthless or non-existent.

In most cases, potential victims receive a telephone call from a professional-sounding stockbroker offering investment opportunities including free research reports, special discounts and "secret" stock tips.

But those who are persuaded to invest end up with nothing, or with shares that are so worthless they are impossible to sell.

Huge amounts of money are defrauded this way every year. Australian businessman Jeffrey Revell-Reade, who was recently convicted of defrauding more than 1,000 investors by selling them shares in companies that did not exist, made an incredible £70 million fortune out of his boiler room scheme.

How can I avoid being caught out?

Boiler room scams tend to start with an unexpected telephone call. So if you receive a call from a stockbroker you have never done business with, you should definitely proceed with caution.

Other ways to spot share sale frauds include when the person calling you starts to use so-called hard-sell tactics to pressure you into making a decision, such as claiming that you will miss out if you do not invest immediately.

The basic rule of thumb is that if it seems too good to be true, it probably is.

If you have any doubts, you can also check if the company is regulated by the Financial Conduct Authority (0300 500 5000), and if not, if it appears on the regulator's list of unauthorised firms and individuals or unauthorised overseas firms.

I've been defrauded. What should I do?

First things, first. Break off all contact with the fraudster, and report the scam to Action Fraud so that it can take action to prevent other people being caught out.

You should then alert your bank if you have given the fraudsters your bank account details and be on your guard against other fraudsters contacting you claiming that they are law enforcement officers or lawyers who can recoup your money - for a fee.

It is also worth holding on to any written communications you receive from a boiler room to share with the relevant authorities, although as many firms are based overseas the chances of you receiving compensation from a UK scheme are slim.

Other common scams
Phishing
Car fraud
Ticket fraud
Auction websites