Red letter warning on fraudsters

Meet Mr. X, a reasonably experienced UK investor who has run his own business for 35 years and has his own small share portfolio. He is persuaded over the telephone to invest in a series of companies, which he is told have dynamic prospects, by a persistent broker.

So he invests £10,000 in shares at 0.72p each in a children's bicycle firm, MV Sports, with a license to make Harry Potter merchandise. 'I was supposed to make a bomb, because it was connected with the marketing of the film,' he says.

His broker from the impressive-sounding firm of Goldberg Kravitz then suggests he put a further £10,500 in Owl Technologies shares at 5.25p, a water-treatment firm supplying the maritime industry.

Scenting a gullible victim, Goldberg Kravitz then offered Mr. X several other golden opportunities. One was to spend £2,100 on 140,000 shares at 1.5p each in Matthew Algies' chain Coffee Heaven. The latter is now part of Bakery Services, whose shares are worth 0.3p.

Today Mr. X's MV Sports shares are worth 0.2p, and Owl Technology shares trade at 2.25p. Sadly this story is only too typical of smaller portfolio owners in recent years.

There is no suggestion that the companies themselves had any dealings with Goldberg Kravitz, But in all cases, Mr.. X claims, the prices he paid were highly inflated and their prospects wildly exaggerated, with the broker pocketing the difference between the price he paid and the true, market value of the shares.

What Mr. X did not realize was that, despite its London phone number and freepost address, Goldberg Kravitz was in fact an offshore company based in Spain, unlicensed by neither the UK's Financial Services Authority nor the Spanish authorities. And this firm's specialty happened to be high pressure telephone selling of shares that are mainly unlisted 'over-the-counter' stocks.

Then consider Herr Y, a very wealthy German 38-year-old and owner of a construction company who thought his fortune was about to be transformed when he was introduced to an investment guru with a knighthood and a guaranteed method of doubling his money in a month. It was a deal that looked too good to be true.

The impressively titled, Sir Robert Scott Macmillan's Scottish and English addresses at country estates and his business contacts all contributed to his credentials and credibility. This made the special scheme that he was offering for people with a large amount of money to invest, based on the US Federal Reserve and emerging markets, all the more credible. He promised to double their money within 20 to 30 days.

It was only after the German businessman wired his personal fortune of $2m to a bank account in London that he learned that the scheme was indeed too good to be true.

Scotland Yard fraud squad officers subsequently issued a photograph and details of Robert Scott Macmillan, who has not surprisingly, disappeared along with the $2m. They also revealed that the man claiming to be Macmillan does not have a title, an estate in Scotland or a real plan to double your money within 30 days.

Both of these scams are even more extraordinary because nether victim ever met the fraudsters. The deals were done by telephone, fax and e-mails.

Why, why do sensible, experienced people fall victim to such unbelievable schemes? And why do they not carry out the simplest of checks before handing over, what in both cases were large proportions of their personal savings?

In a further example of bolting the door after the horse had fled, the UK's Serious Fraud Office investigators recently raided 13 businesses and homes in Britain, Spain and the Caribbean in an inquiry into alleged share dealing and wine investment scams.

Mr. X might be relieved, to know, but will gain no recompense from the fact that, one of these companies under investigation is, Goldberg Kravitz. This is actually one of a network of companies and inter-related subsidiaries of a private bank in Grenada, Salisbury Merchant Bank.

This action at least prevents these particular companies continuing their fraudulent operations. But it would be far better if prevention, which is better than cure, could be more effective against this kind of activity.

As with many victims of fraud, the victims don't want to be named for fear of ridicule and the risk to their finances and reputation. But looking at the sums being traced by the SFO, it would appear that many other victims do not even report their losses. Yet this merely encourages more unscrupulous confidence men to practice their trade on the unsuspecting and trusting investors of this world.

The caveat emptor 'buyer beware!' should be the motto of every investor. And successful businessmen should take as much care with their investment portfolios as they do in daily business. So often a fortune that has taken years to accumulate can be lost by one foolish instant decision.