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Shares: Sales Methods

Volume 475: debated on Thursday 8 May 2008

To ask the Secretary of State for Business, Enterprise and Regulatory Reform (1) which agencies of the Government are taking steps to counter the risk of illegal share sale boiler room operations; what mechanisms are in place to ensure inter-agency liaison and information-sharing; and if he will make a statement; (203625)

(2) what steps the Government plans to take against illegal share sale boiler room operations;

(3) what recent representations he has received on illegal share sale boiler room operations;

(4) what estimate he has made of losses to private individuals from illegal share sale boiler room operations;

(5) whether he plans to issue guidance on countering illegal share sale boiler room operations;

(6) what steps he has taken to raise public awareness of the activities of illegal share sale boiler room operations.

I have been asked to reply.

The overall position is that the Government are delivering a multi-agency response to the threat posed by so-called boiler room frauds. These typically involve the use of high-pressure sales techniques by groups operating abroad to sell worthless or non-existent investments.

There has been a coordinated approach as law enforcement agencies, Government Departments and regulators have worked together on several initiatives. These have included:

1. Strengthening prevention through greater education and advice to the public, with recent campaigns delivered by the Financial Services Authority (FSA), the Office of Fair Trading (OFT) and the city of London police;

2. A major enforcement-led initiative to target the key organisers of boiler room networks. This involved significant joint working between UK enforcement agencies and partners overseas;

3. Creating a more hostile environment for boiler room operations based in other EU member states by reinforcing the European framework for regulating the provision of investment advice.

In the future, action against boiler rooms will be strengthened further by the creation of the National Fraud Strategic Authority, which will have an explicit mandate to lead and coordinate national counter-fraud efforts, to ensure maximum impact against serious threats of fraud.

In parallel, the creation of a national fraud reporting centre will boost the ability of law enforcement agencies to take intelligence-led action against complex fraud networks, such as those responsible for boiler rooms.

The number of representations received from time to time by the various departments and agencies involved is low. These occasional representations are typically on behalf of individual constituents who have fallen victim to boiler room frauds.

No estimate of the losses incurred by consumers is available. However, a number of other reports seek to describe and quantify the problem. For example, a report published by the Office of Fair Trading in December 2006 on ‘Research on impact of mass marketed scams’ discussed the nature and size of the problem of high-risk investment scams. That category covered, but was not confined to, what is usually understood by “boiler room” frauds. The FSA published the results of a study of boiler room victims who had contacted their consumer centre in June 2006. Any estimate of the extent or cost of the problem is affected by the reluctance of some people to report that they have been the victim of a boiler room fraud.

Prevention is an important part of any strategy to reduce the impact of boiler room frauds. That requires effective law enforcement action, and action to raise consumer awareness of the existence and nature of these frauds. Accordingly a number of agencies issue guidance and raise awareness about boiler room frauds. These include the FSA, the Home Office, the Metropolitan and city of London police forces, and the OFT. The FSA for example has recently engaged with radio features and news programmes, television, regional and local radio, and various written media. In addition following FSA agreement with registrars existing shareholders will receive warnings about the threat of boiler rooms.