The underperforming shares scam

Tony Levene
by Lovemoney Staff Tony Levene on 17 March 2011  |  Comments 7 comments

If you've bought shares that are underperforming, an offer far above what you can expect to make on them on the Stock Exchange can seem tempting...

The underperforming shares scam

Imagine you bought shares for £1 each in an obscure investment trust some years ago. They did not perform well and are quoted at around 50p. To make matters worse, you know it is very difficult to find buyers for the 200,000 shares you own. If you tried to sell this tough to trade stock, the market would move against you and you would probably end up with 40p a share – perhaps 45p if you were lucky.

These shares were in a “venture capital trust” (VCT), a scheme offering complex income and capital gain tax relief benefits for the well-off (which you are). A VCT buys shares in new and unquoted companies that have uncertain prospects. In your case, the risks were greater than the rewards. But no one ever pretended that VCT investment was a safe home for cash.

Now imagine that, out of the blue, the phone rings with someone offering to buy your shares – all of them. And this is not the 40p or so the stock market will pay but an amazing £8 a share. A quick bit of arithmetic shows this is anything up to twenty times your expected sale price, giving a huge profit.

Tempting? You bet!

Now for the reality check. Why on earth would anyone offer £8 for something they could buy in the stock market for around 50p? If a firm wants to make a takeover to acquire a whole company, it will generally have to pay a bit more – this “bid premium” may often be 20% to 30% but 2,000%?

Are you smelling a rat? This all sounds very fishy and, happily, one shareholder contacted me - many others involved phoned IFA Bestinvest, for help and elucidation.

My advice and that of Bestinvest are identical. Investors were told the calls were a scam and far from making big money for them, they would end up losing even more.

What these investors – some in Core VCT (whose shareholder list was used) but also in other similar hard to exit VCTs – had run into was a “recovery room”. This is a high pressure sales operation which calls owners of poorly performing shares, offering extremely high amounts for their stock. The caller explains that an investor, whose identity has to be kept secret, wants to buy their shares as – take your pick of the following reasons - “the company is needed as a springboard for corporate action” or “the company could be broken up to release value” or “the company can be developed for its patents and other prospects.”

This all sound great but it's nonsense. There is no buyer – at £8 or even 8p. Recovery rooms make their money by insisting on upfront fees – usually several thousands – and making victims sign a “confidentiality agreement” to dissuade them from complaining when the “buyer” evaporates.

Those who fall for the costs for “confidentiality” will be hit for more thousands for other items such as “transfer fees”, “registration expenses” and “compliance costs”. Potential losses can be in the tens of thousands.

These investors were contacted by Jacobson Group which gives a central New York address. Take a look at its website. This seems impressive but it is very short on detail such as the names of directors. A closer look at the pictures on the site shows they are from photo libraries (I hope Jacobson paid for them but as they still have library logos on them they may not have done.) The “news” tab tells you nothing about Jacobson or its supposed investments but is merely a feed from CNN world news headlines.

Jacobson has a phone number but no one picks up or responds to messages. And its New York address is a condominium of luxury flats, not an office block.

Jacobson Group is now on the FSA warning list of unauthorised investment firms targeting UK shareholders. And you only get on that list after substantial investigation.

But even if Jacobson Group was not listed, any unknown firm which calls you, no matter how enticing the deal, is up to no good. There is no “probably” or “likely to be” - there are absolutely no exceptions to the rule that cold calling is bad for your financial health. It's an attempt to get their hands into your bank balance.

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Award-winning scams expert Tony Levene explains why he's writing a blog about scams and why he is The Scam Magnet!

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Comments (7)

  • 27TOZZA
    Love rating 6
    27TOZZA said

    Already happened to me - I was called to say that a company - not to be talked about - very secret and any leak could damage their enterprise - wished to buy up shares in GTL Resources which I owned. I did indeed , but not the number they quoted from their "records" - I actually had, and still do , 4 shares after a consolidation some years ago ( now worth about £4 ).The offer price would have netted me about £80k had I owned that many and I told them to send all the details to me by email.This they did and when I read through the small print it seemed I needed to post an indemnity bond at a cost to me of £3500 - returnable of course when the shares were sold/transferred.I played them along for a couple of weeks and then sent the lot to the FSA and never heard another peep.

    Only the greedy get conned IMHO and happily I`m not !

    Report on 19 March 2011  |  Love thisLove  0 loves
  • Stuart43
    Love rating 0
    Stuart43 said

    Yes, I was contacted by the Frazer White Group in Denver - plummy British accent telling me I can get 12 times the value of some worthless US shares I own. I checked their website and googled a few random sentences and they had nicked their pages from various banks and financial sites. They also had an independent site 'US Regulatory something...' which I phoned and a guy with an American accent spent half an hour explaining to me why I had to advance money before getting loads of money back on a Friday afternoon - which government official has half an hour to chat on a Friday afternoon! When the English guy called back I asked him what it was like to be a thief - I was interested - he was quite indignant. I told him their website was ripped off page by page and he continued to bluster on. I'm still no wiser as to what it feels like to be a thief.

    Report on 19 March 2011  |  Love thisLove  0 loves
  • Kaz64
    Love rating 23
    Kaz64 said

    My other half nearly got caught by this....some bloke from New York kept on and on phoning him to get him to sign this agreement....luckily he didn't, and thanks to this article, we can see exactly what's going on.

    Report on 19 March 2011  |  Love thisLove  0 loves
  • ant01
    Love rating 0
    ant01 said

    Wow, thanks - you've saved me a packet. Similar to your other respondants, I got the dozens of phone calls from a total of 4 'employees' from a 'company' in New York, for an under performing share - vernalis. I was offered over £18 for each share which are currently only 40p (quite some premium). Alarm bells were ringing, indeed, their company websites had only been available for a few months at most (do an Internet search for 'DNS Lookup' to get the creation date of your scanners website). To get my nearly £50000, all I had to do was provide a vendor indemnity bond of a mere £4000. The chaps were pretty convincing on the phone, however thanks to your website I have saved my £4000. No thank you, scammers. (note, another 'tell' is that press releases from the scanners company have only appeared on other peoples websites in the last week)

    Report on 30 March 2011  |  Love thisLove  0 loves
  • goodstich44
    Love rating 0
    goodstich44 said

    We have been targetted by a company called Hermann Brothers Group. Same story, fantastic price offered for almost worthless shares. Swore blind it was not a scam even after being asked several times. Their website takes you to a very genuine looking website. They dropped a clanger though when they asked to see our share certificate but before we even sent it they sent this great looking contract for us to sign. No talk of money untill you get to the box with numbers where it clearly states that 'the vendor' will have have to pay £9,000 for the conversion to £122,000! Nice one eh? What a buch of scum they really are. Nothings to low for them to stoop to sadly.

    Report on 08 February 2013  |  Love thisLove  0 loves
  • fragileuk
    Love rating 1
    fragileuk said

    My MIL was just targeted by a company LOCKPORT CONSULTANTS (web - www. offering to buy shares at a largely inflated price for a £4980 fee (vendor bond) held through another company Chase International Transfer Luckily although she had signed the paper work she had not sent any money before discussing with the rest of the family. However, the scammers were very good at convincing her they were legit and not to mention the deal to others (this is why she had not discussed it before signing as some pf the family are lawyers involved in mergers so the scammers had put her off discussing it by frightening her of, perhaps, gaining any insider dealing info which is illegal). We are now hoping that the signed paper work will do no harm. date targeted 1-7-2013

    Report on 04 July 2013  |  Love thisLove  1 love
  • Safc
    Love rating 0
    Safc said

    This same scam has just happened to me! I am so grateful to you for commenting on this as I still had doubts as whether it was true or not. I was contacted on 01/07/2013 I remember as I was watching wimbeldon, I was told thatI was speaking to a Mr Henry Fisher for Lockport Consultants and that he was acting for another company who wished to buy my shares. the prices were very impressive and the bond was exactly the same price as your MIL. I have been contacted several times and like you eventually signed and returned his email. the same transfer company was named and it was not untill I spoke with my husband we started to consider it was a scam. they wanted me to pay £4,980 upfront. I am very annoyed about this scam and how persuasive he was even when I explained I did not have £4,980 to pay he suggested I sold my car or borrowed the money. I would like to report this fraudulent scam but unsure of who to contact, can anyone help?

    Report on 14 July 2013  |  Love thisLove  0 loves

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