Tony Levene reveals how boiler scams work and why they are so successful.
A few days ago, three men were sentenced at Chelmsford Crown Court to a combined nine years' imprisonment after pleading guilty to running a boiler- room fraud. The case, prosecuted by the Serious Fraud Office, is one of a growing number of successful legal actions brought this year by the authorities against high pressure sales of worthless shares.
Don't let your guard drop, however. Those jailed are just a drop in the ocean and, the word is in the scam community, that if the authorities are closing in, then we redouble efforts, including changing methods and locations, to ensure our lifestyle continues. My phone continues to hum with boiler rooms chasing my money.
But the authorities do deserve credit. They are taking boiler-rooms seriously after years of sweeping them under the carpet with excuses such as “the public expects us to deal with violent crime”, “it's all offshore” and – worst of all
- blaming the victim for their stupidity.
The Chelmsford boiler room scam
In the Chelmsford case, the criminals, based in Spain, targeted UK investors between 2009 and 2010, grabbing over £1.3 million, mostly suffered by elderly (and trusting) people. The authorities were only alerted when one victim bravely reported the loss to Leicestershire police.
The three fraudsters led by James Muir Baird, aged 30, all came from the Braintree area of northern Essex. They received sentences ranging from five years and six months to one year after pleading guilty to a variety of charges.
The techniques have all been exposed here previously – although not this particular set up. They promoted worthless bonds in non-trading companies pretending they were, in this case, shares in Chinese commodities firms. Other boiler rooms have offered bonds paying “a guaranteed 10%” a year, claiming they came from major European firms such as BMW, Nestle and Carrefour – obviously none of these firms had any idea of their involvement as all you need is a good design and a printer to produce the phoney bonds.
How the boiler room fraud worked
The fraud centred on Baird's boiler room in Spain. Potential investors in the United Kingdom were called by his associates, who pretended that they were promoting shares in large Chinese commodity firms in the process of establishing European-based subsidiaries. However, these supposed subsidiaries were, in fact, non-trading shell companies controlled by Baird and his associates and had no link to the Chinese firms.
Baird and his associates stole the identities and numbers of real FSA- regulated firms – again a growing problem often listed in this column – to convince victims the firm was real.
Money paid to the boiler-room operation was not used to fund commercial activities but, instead, supported the lavish lifestyle of Baird and the boiler-room employees.
While these three have been locked up – although with good behaviour and time served on remand, at least two could be out in time for the Olympics – it is the lavish lifestyle element that will continue to attract new bosses and new recruits to the boiler room life.
The boiler room scammers
The boiler room job is monotonous. It consists of phoning people all day long with most slamming the phone down once they hear the drone of the call centre in the background. Those that listen are read a script. That's boring as well, although the frequent use of cocaine and other drugs can make the work more bearable.
But if operatives only convince one person a week, it's pay dirt time. Put simply, convincing someone to part with £10,000 on worthless stock is worth £2,000 to the seller, £2,000 to his (it's nearly always a male) manager, and £2,000 to the boiler room owner. That leaves £4,000 for the costs of the boiler room.
So this can give someone in his twenties around £100,000 a year. It will be totally tax free - you can hardly put down “boiler room operative on an HMRC form - so that's probably more take-home pay than most investment bankers get.
Confiscation proceedings will follow on a date yet to be fixed. But victims are unlikely to see more than a small percentage of their losses – the rest was spent on lavish living on one of Spain's Costas.
Of course, they are luckier than victims of the many boiler rooms which are not shut down who will never get anything back.
SFO Director Richard Alderman said; "Boiler rooms are a blight on the investment sector. They often create victims out of aspiring individuals and dash hopes of a secure retirement. I am pleased that the SFO has played its part in bringing the offenders to justice. I hope that confiscation will help to restore some of the damage so callously done."
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