This website has long been warning about the dangers of investors dealing with offshore 'brokers' (Boiler Rooms) who cold call offering quick, easy and fantastic profits. The shares they often promote are in go-go sectors like technology, drugs or mining/oil, anything that’s making the news.
All of these Boiler Room fraud operations only exist only to steal money from their unsuspecting customers. When a client wires money to them, usually to a Bank in the Far East (where the ‘know your client’ rule doesn’t seem to be well enforced), that will be the last they see of it.
Some of these scammers just disappear when the money has been wired but others are altogether more sneaky and will try to work a longer term scam. They can do this on the assumption that if someone has fallen for their tricks once, there's a good chance that they'll do so again.
Of course the trick to any successful double scam is to make sure the customer never realises he's been scammed in the first place. And that’s what this article is about.
What Are Regulation S Shares
There’s some debate about whether a typical Boiler Room will sell shares in a company or just fakes. But it doesn’t matter because even if the shares are real the company itself will be pretty much worthless.
Real shares are normally sold on tiny American companies which are traded on unregulated markets. Many of these shares are what they call ‘Regulation S’.
A Regulation S share is one which resident US citizens cannot buy. They also have trading restrictions, normally meaning they can’t be sold for a year or so.
Be Wary Of Any Company That Offers To Deal In Regulation S Shares
Recently there have been several internet sites that have sprung up offering to help investors sell Regulation S type shares.
But we would strongly anyone who is thinking about doing business with any of these firms to do as much research into them and their backgrounds as possible. This research is even more critical if the firms in question are NOT located in your own country AND regulated by your Country's own financial Regulator.
Some Ideas For Researching These Regulation S Brokerage or 'Stock Exchange' Sites
1. Get Researching
- The internet is your friend when it comes to research and people who don't take the care to fully investigate who they're doing business with can often encounter problems.
2. Google Is Your Best Anti-Fraud Friend
- Always do a Google search on any financial firm you're about to do business with unless they're a well known brand
- Type in the company's website address into Google. Take great interest in the other websites that mention them on their websites - financial sites should be linking to financial sites, not random sites linking to financial ones etc
- For example, if you Google the name of any well known brokerage company there will be many hundreds of sites linking to it
- Enter the firm’s website address into this link - It will tell you when the domain name was first registered. If under 2 years be very wary as it is most probably a throw away domain (used for just a short period of time)
3. No Address on Website
- As a firm rule of thumb we would strongly advise everyone never to do business with any financial firm that doesn't publish its address on its website
- Can you imagine a regulated brokerage or financial firm in your own country trying to hide this information?
- But if a firm which you are not sure about does list the address then again do some digging with Google. Type in the first line or two of the address and often you’ll find many companies linked to this address, why, because it will probably be a maildrop and not a proper office
4. No telephone number
- Again, why would anyone consider doing business with a financial firm that doesn't publish a telephone number on its website
- Also, if a suspect firm does list a telephone number make sure you call it a few times
- Does a receptionist answer it with the company's name 'Good morning, So-and-So Brokers how can I help you?' Or do you get an answerphone or worse, an answerphone that never announces the name of the company you've actually called? If so, chances are it’s a fake company
5. A Website That Tells You A Lot About Nothing
- If you surf on some of these Regulation S sites you'll soon see that most of them tell you a lot about nothing
- They drone on about Regulation S type shares, Institutions, 'global clients' etc but in reality they talk little about the company in question, who it is, where it's located, how it conducts and operates its business etc
How A Potential Regulation-S Scam Might Work
Simple, it would likely use the 'advance fee' strategy where greed will play the dominant role and hook. It might work something like this -
- An investor who was scammed out of some money some months ago will be contacted saying the Regulation S shares he thought were perhaps worthless are in fact worth $25,000
- This is because some 'global high-flying businessman' is trying to make a bid for the firm and is willing to pay a significant premium for all the shares
- But, because of some legal technicality the shares cannot be 'released' (often called the 'legend) until some 'bond' is paid by the investor (or even the tax on the profit has to be paid upfront)
- Remember, the person on the other end of the phone will be an extremely skilful salesman and we admit that many times their stories are almost perfect
- The salesman might ask for say $5,000 so the shares 'can be released' etc
Many will fall for this (especially the ones who fell for the first scam) because they'll view that 'investing' $5,000 to make $25,000 (the bond of course will be 'refundable') is an excellent investment
- But more often than not the investor will find himself out-of-pocket again......
Summary
Research is a MUST when dealing with any firm in the Regulation S marketplace.
If you are looking to do business with any firm that offers to help sell your Regulation S shares and the firm fails many of the simple points above – chances are you’re being setup. Also, if the broker isn’t located in the UK or are asked to wire money to an offshore bank, then again you’re probably being setup and any money paid will be stolen.
