Watch Out for "Boiler Rooms"

Boiler rooms have been one of the most common forms of securities market fraud. According to information gathered by the SFC, boiler room activities have become active again recently and there are signs that more Hong Kong investors have become the targets. In June and July, we put 13 possible boiler rooms on our alert list.

In most cases, investors receive unsolicited calls from overseas companies to offer investment services.  Often, these companies claim to operate in country A by giving an address of a business centre, approach investors in country B to lure investments in country C, and settle transactions in the country where they purport to operate or in country D.  Yet they are actually operating in some other places. 

Boiler room operators have some common features:

• They operate from “virtual offices” by using mail forward facilities and they only contact investors by e-mail and phone. There are never any face-to-face meetings.
• Using high pressure sales tactics, they mainly solicit investors’ interest to invest in stocks, such as pre-IPO or over-the-counter stocks in a third country like the U.S., or options, bonds or commodities that are difficult to understand.
• They may become unreachable once money is received. Investors cannot get back their money or may find their share certificates worthless forgeries.  The scam might further develop as the operator might pose as another broker and offer to help investors sell the stocks that supposedly have been acquired, on the condition that the investor pay the operator commission upfront or make a cash deposit. 

As both the operators and the purported investments are based overseas, their legitimacy is often difficult to verify and their operations are difficult to trace.

Since November 2000, the SFC has set up an Alert List (Note 1) on its website to warn investors of unlicensed overseas companies that have come to its attention.  We are aware that some companies solicit Hong Kong investors and we have put a remark besides those companies on the Alert List.

We have been constantly updating the list. The total number has reached 98.

Investors should bear in mind the following when they receive unsolicited calls:

• Verify the legitimacy of the persons or the companies with the SFC’s Public Register of Licensed Persons and Registered Institutions or regulators in the jurisdiction where they claim to operate (the websites of many are accessible under “Links of Interest” under “Employment and Miscellaneous” on the SFC website).
• Check the authenticity of the investment products offered with the relevant regulator if in doubt.
• Never invest instantly based on a telephone sales pitch, an unsolicited e-mail, fax or mail-out solely. Ask questions about the companies and the investments.  Do not send money to anyone before verification.

The SFC encourages investors to report suspected boiler room operations by emailing the details to investor.info@hksfc.org.hk, submitting the completed complaint form on the SFC website, or calling the Investor Hotline at 2840-9333.  Although there are limited actions that the SFC can take against boiler room operators if they do not have any actual operations in Hong Kong, the SFC frequently co-operates with overseas regulators to tackle fraud across borders and to warn business centres who provide facilities to boiler room operators.

Ends

Notes:

1. Please click “Advice to Investors”- “Investor Alert”- “Alert List”.