£1m victory for boiler room victims
Filed under: Investing
The ruling against Sinaloa Gold Plc and one of its directors, American Glen Lawrence Hoover, states that it must compensate 79 investors who lost a total of £1,097,092.
Fight back - latest on scams
The case was heard in the High Court in London yesterday by Mr John Jarvis QC, who ruled that Sinaloa had offered shares to the public through boiler room fraudsters, and without a prospectus – a requirement of making shares available to the public.
He also ruled that Hoover was knowingly concerned in Sinaloa's breaches. "Sinaloa was a sham operation," Jarvis said. "Mr Hoover knew all that was going on and took an active part in the scam that took place."
Fight back - latest on scams
The FSA's Tracey McDermott said the regulator was determined to put an end to boiler room scams.
"This case demonstrates that we are prepared not only to take action against companies involved but where possible, the people behind these scams - whether in the UK or overseas," she said.
The bad news for those waiting to get their money back, however, is that only the £127,000 secured in December 2010 when the FSA obtained an injunction and freezing order against Sinaloa and Hoover, is currently available to be repatriated.
The rest must first be obtained by the FSA in accordance with the terms of the court order, which forbids Sinaloa and Hoover from disposing any assets before making the payment.
What are boiler rooms?
Boiler rooms are "brokers" that peddle poor-quality, and in some cases non-existent, investments using high-pressure sales tactics.
In the case of Sinaloa, for example, investors were told that a UK company (Sinaloa) was raising funds to develop a gold mine in Mexico, and were encouraged to buy shares in the company by boiler room brokers, including PH Capital Invest and Tudor Asset Management, on that grounds.
However, the FSA found no evidence that Sinaloa held any interest in the mine and discovered that up to 90% of the money raised went to Hoover, his associates and the boiler rooms .
How can I spot a boiler room scam?
The unscrupulous individuals behind boiler rooms are known to target wealthier Britons with money to invest, offering "once-in-a-lifetime" opportunities to snap up shares at bargain prices.
Their tactics include cold calling, putting you under pressure to pay up or lose the opportunity for good, and claiming to have insider information that they are prepared to share with you.
If you are contacted by a "broker" that acts in this manner, a hasty retreat is therefore the best course of action.
How can I get compensation if I am caught out?
You can report suspected boiler room scams to the FSA by calling 0845 606 1234.
However, as the companies behind these scams are not authorised by the regulator, your money is not protected and compensation can only be awarded if the FSA manages to freeze assets or secure a court ruling as in the Sinaloa case.
"Dealing with unauthorised businesses carries a great deal of risk," McDermott added.
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