Case study boiler room scam

Mark invests in an overseas company

""Mark received a call on his mobile from a salesman offering him discounted shares in a well-known company on the London Stock Exchange. The salesman said that if Mark invested he would see immediate gains as the offer was for shares at 30% less than current market value.

Mark was an experienced investor so was keen about the deal but suspicious. He told the stockbroker he didn't have time to talk but to call back.

That night a more senior salesman called Mark and directed him to the company's website. Mark was told he was lucky that the offer was still available.
The shares were almost sold out but a few had become available as another investor had pulled out. Mark said he would think about it.

The next day Mark received another call from the salesman and was urged to make a decision quickly as the shares were being snapped up by other investors.

Mark looked at the company's website which seemed to back up the salesman's claims. He also searched for the investment online and discovered it listed on an overseas regulator's website.

Mark decided to buy the shares before it was too late. He transferred $7,000 from his investment fund into the broker's overseas account. He was told to put the money in an offshore account to reduce tax on the transaction.

A few days later, Mark checked the company's website again. It showed his investment was worth $10,000 and he was happy with his $3,000 gain. He also received a dividend payment of $750 into his bank account.

The salesman contacted Mark the following week to check whether he had received his payment. He also urged him to invest in a similar offer which required a higher minimum investment of $100,000. Mark agreed as the first deal had gone so well.

Once he was off the phone Mark had second thoughts about making such a large investment. He thought it was risky to put all his eggs into one basket.

When the broker called to confirm the funds transfer, Mark explained his concerns. The broker said Mark couldn't pull out of the deal as the investment had already been made on his behalf. If he didn't send through the funds, the broker's company would have no choice but to take him to court. Mark felt he had no choice, so he transferred the $100,000.

Two weeks later Mark received a call from the Federal Police. He was told that other clients of the broking company had complained to the Police and to ASIC that they'd never seen their investment money or any return except for a few small dividends. He was devastated to find out that he was another victim of the scam.

The Federal Police told Mark that he could not get his money back because the company was operating from overseas and was outside their jurisdiction. When Mark checked online he found the company was listed on MoneySmart's list of companies you should not deal with, as they were known scammers.

This case study is based on real victim profiles collected by the Australian Federal Police. These scams are called 'boiler room scams' because of the pressure put on clients to invest and the chain of calls received from apparently more and more senior salespeople. The websites set up by the scammers are fake and some of the overseas regulator websites are also fake.  Before you deal with a company always check that it is licensed in Australia by checking ASIC Connect's Professional Registers.

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Last updated: 22 Jun 2012