Fraudsters work from boiler rooms

Fraudsters approach businesses, offering to manage the sale of their shares to the public.

Once the business takes up the offer, the fraudsters cold call members of the public and sell them shares but often pocket investor cash and vanish.

Businesses are then left to compensate the people who have bought the shares, an expense many firms can't afford.

Boiler rooms

Investors are being enticed to pay over the odds for the shares David Mayhew, FSA The top ten scams targeting consumers

The scam involves the use of 'boiler room' tactics.

Boiler rooms are call centres which cold call members of the public offering shares.

Usually, the shares on offer are either worthless or do not exist.

In this instance, the FSA said the boiler rooms first contact businesses to get the go-ahead to offer shares to the public.

The fraudsters target small companies that need to raise investment cash.

The firm's agreement gives the share offer a degree of respectability, helping reassure potential investors.

But the fraudsters offer the shares at hugely-inflated prices and sometimes vanish with investor cash.

"This is a new money-making scam by boiler rooms," David Mayhew, FSA director of enforcement said.

"It is particularly worrying, not only because investors are being enticed to pay over the odds for the shares but the company whose shares are being sold...potentially face financial loss."