Rip-off merchants are always on the prowl - so invest with care

The City of London is making life much more difficult forinvestment crooks. But this despicable breed, obtaining money byfooling unsuspecting (often elderly) shareholders, is stillbelligerently on the prowl and, I suspect, will this year make moretrusting souls regret that they responded to that cold call. I havebeen accosted dozens of times by a variety of miscreants offeringonce-in-a-lifetime opportunities to buy sensational shares, and eveninvited to sell shares that had clearly surrendered any value.

Share scams have always been part and parcel of the investmentscene. A distant episode was the infamous South Sea Bubble, whichspawned a horde of highly imaginative but completely phoneycompanies that suckered cash from vast numbers, ranging from Lordsto parlour maids. When I started reporting on events in the Citymore than 50 years ago, one of the favourite scams was sellingshares in derelict mining companies. Another was takeover bids,sometimes for biggish companies, that had no chance of succeedingbut allowed "those in the know" to benefit from the subsequentupsurge in the share price.

Over the years, City frauds have become more sophisticated. Theadvent of so-called "boiler rooms" flogging no-hope shares is arelatively new dimension. Besides shares, they offer othertemptations, such as land and wine. Many are based overseas, makingthe task of Britain's regulators that much more difficult.

In the past year, I have received two letters from the FinancialServices Authority, warning that I appear on lists used byfraudsters. I am not surprised that I am regarded as vulnerable.After all, like every shareholder, my name and address areobtainable from the shareholder registers of quoted and unquotedcompanies. And I have sailed close to the wind once or twice.

Another anti-fraud response I have noticed comes from Capita, aleading registrar. Last month, I sold some shares. A few weekslater, I received a letter from Capita asking if I had authorisedthe sale. It is, of course, an old dodge selling shares belonging toanother party. It must be much more difficult to do so in these daysof much tighter security, with identification passwords and secretcodes. Still Capita's inquiry suggests it still goes on. As theregistrar's security team says: "This letter is sent in the interestof shareholder security so that you can let us know if we haveprocessed a transfer that you did not ask for." The FSA asksinvestors to get in touch if they have had a boiler room approach.Last year, it sent approaching 100,000 letters to individualswarning of the dangers

Probably my most audacious approach, involving about half-a-dozen calls, was in connection with a redundant share that I knewwas worthless although the company still traded. The callers, whosaid they were based in Canada, wanted to accumulate shares ahead ofmounting a takeover bid. They offered to buy my holding at a quiteridiculous price, but it soon became apparent that it would cost mea considerable up-front payment before the deal could be completed.If I recall correctly, the accompanying message suggested that mycash was needed to satisfy some obscure (obviously non-existent)Canadian investment rule.

Other scams investors should watch for include pump-and-dumpexercises when false claims, usually involving penny stocks, arecirculated. The instigators sell as the shares advance, netting anice little profit. At one time, such stories were mainly spread bywhispers in City bars and by shady telephone calls. The internet nowmakes it much easier to get a story, often about a bid or adiscovery, going the rounds. A possibly legal but dubious ploy iswhen fringe organisations buy a parcel of shares in a small-capcompany and then, at inflated prices, place them with investors ontheir books.

Prosecutions have been successfully undertaken but rip-off crooksare still on the rampage. Clearly, they continue to make easy money.However, if investors are vigilant their rewards could disappear.The crackdown on investment crooks is to be applauded but penaltiesoften seem too lenient. And many fraudsters are out of reach becauseoverseas. So, at the end of the day, it is us investors who candefeat these parasites by ignoring their sophisticatedblandishments.

yourmoney@independent.co.uk