Over the past few years investors in Cyprus have seen their fair share of investment calamities. This has included the Cypriot Stock exchange crash, the world wide stock market crash as a result of 911 and more recently the sub prime effect.

Despite these events investors continue to be attracted by the excellent potential profits to be made from buying and selling equities. Dealing with reputable regulated firms provides investors with access to professional firms providing high quality services. This enables investors to have the best opportunity to take advantage of the excellent potential returns available from Equity investment. But, volatile stock markets are fertile grounds for the operators of share scams. Boiler room share dealing is one of the oldest scams around and was made famous by the film of the same name. It involves cold calling prospective investors with enticing offers of great profit through investment into shares.

The scam operates through unregulated “stockbrokers” promoting share offers to individuals. The normal parley is that the “stockbroker” has had information that will result in a particular share dramatically rising in value over a short period of time, usually a few months. This period then gives the “stockbroker” the opportunity to go back to the investor and entice him or her further with explanations of greater profits. The first investment may be a relatively small amount, in order to “hook” the investor. Subsequent phone calls from expert sales persons working to a scripted formula will entice investors to commit larger amounts to the “excellent opportunity”.

There are numerous companies that offer such “opportunities”, however the shares which may or may not be quoted on recognised stock exchanges may actually be worth less than they are offered at or may have no value at all. Sometimes the share can not be sold in the future or only at a lower price. Even worse the company may simply vanish with the investor’s money. Boiler rooms are usually unregulated, which means if something goes wrong there is no regulator to turn to.

Before taking up an “offer of a lifetime” always check that the company you are dealing with is regulated. In Cyprus companies must be regulated by the ICCS if they are an Independent Financial Adviser selling Insurance based products, the Cyprus Securities Exchange Commission if they are Stock Broker or an Adviser dealing mostly in mutual funds. Most European countries have similar regulatory authorities. If the approach is from a company claiming to operate from the UK then the Financial Services Authority has a list of regulated firms.

If you are contacted by an unregulated firm or individual pass the information on to your local regulator who may be able to stop the firm operating or warn other investors of the danger.

As an investor in Cyprus, only deal with regulated firms. A regulated firm must comply with national regulation. Individuals employed by regulated firms must be fit and proper and comply with the relevant regulations applicable in their country of regulation. As the European directives come into force over the next few years regulated firms within Europe will meet minimum standards of competency and qualification. All will carry professional indemnity insurance and be regularly scrutinised to make sure they are complying with the standards set by the European directives. For more information about boiler room scams visit the UK FSA website www.fsa.gov.uk/consumer.

Article written by: St.John Coombes BA Hons. Cert PFS. FAIQ (CII)
St.John Coombes is a qualified and licensed International Financial Adviser working in Cyprus with over 20 years experience. St.John works predominantly with High Net Worth clients providing a full range of financial services.

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