Caveat Emptor : Every Silver Lining Has A Cloud, So Learn From Others’ Mistakes

A couple of months ago I got a call from a well-spoken gentleman who told me he was a broker promoting a hot new technology company. The company was supposed to excel at ‘biometrics’, the science of using eye retinas and voice recognition to identify people. They were supposed to be gearing up for an initial public offering (IPO) and I was being offered a piece of the action. While we were talking, I did a quick Google search of his brokerage’s name. One of the first entries was on a respected investment bulletin board. The advice was to steer clear from what was described in no uncertain terms as a ‘boiler room’ scam.

To clarify, a ‘boiler room’ scam is an enterprise that is usually conducted out of low-rent offices, hence the term ‘boiler room’. It uses high-pressure sales tactics and false or misleading information to solicit investors.

Obviously, that was the end of that. However, it set me to thinking. How many poor investors had been duped that day? How many would be duped in the weeks ahead? So, I made a lengthy call to the Financial Services Authority and gave them all the details. They said they’d look into it. They’ve now listed the brokerage on their website as one of a number of “unauthorised overseas firms known to be targeting UK investors.”

However, that’s all they’ve done. The websites of the phoney biometrics company and the phoney brokerage are still up and running and, as far as I can see, they’re still taking investors’ credit card details.

According to an FSA press officer, it’s not their policy or within their power to chase financial fraudsters of this nature. Their main priority is “raising consumer awareness.” Sounds like a bit of a cop out to me, although, to be fair, criminals like this are ten a penny and based all over the world. However, I reckon the FSA spends too much time making life difficult for honest IFAs and the like, while dangerous fraudsters get off scot-free.

To help protect against financial scams, we’ve decided to provide the following checklist that will help you spot a boiler room operation within minutes:

‘Boiler Room’ Checklist

1. When was the company registered?

If you go to a website such as oswalds.co.uk, who offer a company search service, or go direct to Companies House, you can type in the name and see when the company was established. In this case the company was formed on December 3rd last year, only weeks prior to me being contacted. I find it hard to believe that a company could be set up, develop a range of high-tech products and prepare for an IPO all in the space of two months!

2. When was the web address registered?

Go to who.is Type in the web address and you’ll see when the domain name was first registered and who by. In my case the phoney biometrics company’s web address was registered on March 16th. This is the exact same day the web address of the brokerage firm promoting the company was registered. Now isn’t that a coincidence?

Also go to Alexa.com and type in the web address.

Then go to traffic rank – a good trading site sould have a traffic rank of 500k or less – this is a rough indication of how busy the site is.

3. Where are their offices?

Most websites have a ‘Contact Us’ page. In this case the biometrics company had impressive looking offices in London, Hong Kong and Washington. However, type part of these addresses into Google and you immediately find out that these are real but serviced offices, which offer personalised telephone answering and a perfect cover. Let’s face it, how many big tech companies run out of three serviced offices? 4. Who are the company’s partners?

A lot of websites list other prestigious companies as business partners to gain reflected glory. In this case the tech company listed the likes of Panasonic amongst others. I contacted one of these, a genuine retina recognition company in New Jersey, and they said they’d never heard of the phoney tech company and were furious about being linked with a scam. 5. Who are the company’s directors?

Copy and paste their names into Google and see what comes up. In my case I couldn’t find any relevant information about people who were supposed to be leaders in their field. In other words, they don’t exist.

6. Have they been lazy?

It’s easy enough to put together even a sophisticated and convincing looking website. However, most scammers couldn’t be bothered writing page after page of product and company information. So they simply lift it from someone else’s website. In this case whole sections of the website had been lifted from an official biometrics website called biometrics.org. 7. Is their site secure?

If the scammers are asking you to provide credit card details, there’s a good chance they won’t be doing so in a secure environment. A web page is generally secure if it contains a little yellow padlock somewhere on the page, usually in the bottom right hand corner.

8. Finally and most importantly

Never give your money to someone who calls you up out of the blue!

Charles Hetherington

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