As part of an ongoing series of articles looking at investment fraud cases or allegations of financial crime, this article examines what happened when a boiler room scam was perpetrated on unsuspecting investors.
What is a boiler room scam?
A boiler room scam can take many forms but it is the term usually applied to the high-pressure selling of shares in over-valued or even worthless companies by a team of fraudsters.
These companies, if they even exist at all, are usually listed on an overseas stock market where it is difficult to conduct any meaningful research or establish their validity.
Quite often investors only discover they have been duped when they try to sell the shares at a later date. Meanwhile, the perpetrators use the ill-gotten cash to fund lavish lifestyles and purchase high-end cars, watches and jewellery.
Boiler room scam case study
One of the largest ever boiler room scams committed in the UK was a share fraud which involved the illegal selling of shares in US-listed companies. The fraud was carried out by a team of scammers operating from offices based in Madrid.
Between 2002 and 2007, approximately £70.2 million was obtained from over 1,000 UK investors. The perpetrators operated as bogus stockbrokers and used a series of off-the-shelf corporate entities to give their fraudulent scheme the appearance of legal legitimacy.
The shares were held mainly in start-up companies and investors who bought shares were advised that there was a restriction in place which meant that these shares could not be re-sold within a 12-month period.
What happened next?
Following the expiry of the 12-month ‘lock-up’ period, investors who tried to sell their shares discovered that they were unable to do so as the shares were worthless. It transpired that the shares were in shell companies or companies that were effectively dormant and were not operating entities.
Where’s the money gone?
It is believed that the mastermind behind the fraud, Jeffrey Revell-Reade, siphoned off up to £43 million and used the money to buy luxury homes in London, Spain and Australia.
He also chartered private flights and yachts, bought high-performance cars, Rolex and Cartier watches plus two paintings by Rolf Harris.
Several hundred thousand pounds was also paid to a former senior partner in a firm of Leeds based solicitors Fox Hayes.
In exchange for this payment, the law firm allowed its name to be used on promotional literature issued by the fraudsters and to also collect monies from investors.
What was the outcome for investors?
The individuals (and corporate entities) behind the boiler room scam were not authorised or regulated by the Financial Conduct Authority (FCA) to provide financial services in the UK.
As such, investors could not take advantage of the Financial Services Compensation Scheme, which is only available to victims of authorised firms.
The fact that the Serious Fraud Office (SFO) eventually secured Confiscation Orders totalling just under £8 million of which £3.75 million was repaid (and passed on as compensation to victims) means that most of the £70 million invested remains unaccounted for and investors have been left seriously out of pocket.
What was the outcome for the perpetrators?
The SFO pursued a case against the fraudsters and following two separate trials, a total of nine individuals were convicted of conspiracy to defraud. They received sentences ranging up to nine years and six months.
In April 2016, two of the criminals were issued with Confiscation Orders and ordered to pay a total of £11 million in compensation to investors. Revell-Reade had his order reduced to £7.5 million in April 2017 and by June 2018 he had repaid only £3.5 million.
His failure to repay the amount owed meant that a default prison sentence was activated and he will now serve an additional four years.
The fact that the investigation and eventual prosecution took the SFO seven years to conclude indicates the complexity of bringing a case across multiple jurisdictions. This may also explain why boiler room scams often take place in overseas locations.
Do your own due diligence
If you believe you have been scammed then please report it on the Financial Conduct Authority’s consumer helpline 0800 111 6768 or use their contact form.
Also, please be alert to any follow-up asset recovery scams. Fraudsters have been known to pass your details on to other scammers so you may receive offers to buy back your investment or advice on how to get your money back for an up-front fee.
For more information on how to deal with boiler room scams please click here.
