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Boiler Room Scams

Hi all - Client was conned over a number of years to part with thousands to buy duff shares.

Foreign police force now involved confirms thay are scams but just wanted to double check.  Presumably if these turn out not to be shares in valid companies then it's just theft, with no tax claim, but how about if the shares did relate to corporations, that maybe turned out to be shells would the losses qualify for CGT relief?

Thanks for any help

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27th Mar 2012 14:40

Losses arise

only on disposal, or when the asset becomes of negligible value. If these shares are/were always worthless, they have not become of negligble value, so there is no claim there - the only possible claim might be if the client manages to sell any shares, albeit at a huge loss. Tough, but that's what the legislation says.

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27th Mar 2012 15:24

Harsh!

No doubt true, but harsh!

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27th Mar 2012 16:37

but if the shares did not exist in the first place

Then there was no asset to have any value or even a zero value to start with, so I don't think there is any claim at all.

Same result as Steve but different reasoning....

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By Hansa
27th Mar 2012 18:41

"Duff shares"

One of the problems in giving a clear answer is the use of a lot of emotive phrases. eg "Boiler rooms", "Duff shares" and "scam".  It might help to understand what in reality happens.

First, either the shares (and the companies) existed or they didn't.  If they didn't, then the issue is of straightforward fraud (little different to a pyramid scheme in essence).  In such a case the client has handed over money to a con-man  and no reliefs can thus be available.

Quite likely though, the scenario might involve a real company with a genuine project.  Company X develops a process but needs £300k to bring it to market.  Too much for the banks, too little for Venture Capital firms.  A "Business investor" comes to the "rescue", puts in the £300k, and receives millions of shares (forget penny, probably 0.00001p Nominal value each) for which he has paid (say) 3p each.  So far completely legal. 

Mr Business Investor then arranges (indirectly) for those shares to be sold via spivs operating out of say Spain or Thailand.  These are people who in another life would sell 2nd hand cars from bombsites.  They are earning massive commissions (20-30%+) not to mention the one who runs (and pays for) the sales office who again might be on 20%.  (the selling process is thus commission driven with truth being at a premium - lots of promises of imminent flotation etc.).  The shares might thus be sold for (say) 45p each - or 15 times the value at issue, with Mr Business Investor receiving (say) 9p per share (200% profit) which he declares as a capital gain. 

The company may (or may not) be successful - more likely than not unsuccessful as is the way with start ups and bright ideas.  If the company is actually liquidated then a claim might arise (Contract note & liquidators final report being fairly good evidence.  If the company is struggling on, having burned the initial investment, then the best bet would be for the investor to sell the shares for a nominal £1 the lot to a friend (having of course researched matters to ensure they don't have a value).  This would involve using a share transfer form, signing the back of the certificate etc and sending to the Registrar if known, or the CoSec at the RO of the company.  I cannot see why this shouldn't create the necessary loss.  The fact that the client "overpaid" for the shares does not mean they had no value. 

Of course, if no contract note or share certificate was ever received then my opening comments re fraud probably apply. 

 

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Disposal

If he really acquired the shares then he has something to dispose of.  He needs to find an arm's length party to acquire them for little or no consideration, someone might pay him a few pence for the share certficate.  Then the negligible value claim is not in point.

If he was doing over a number of years, he was a danger to himself still, to quote Bullet Tooth Tony "You should never underestimate the predictability of stupidity."

 

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30th Mar 2012 12:55

crying shame

I think if either a share certificate or a contract note (or both) was (were) issued then you should treat the acquisition and disposal in the same way as any other.

It would be a crying shame not to use a loss such as this.

Chris.

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Thanks All

Lucky I dropped by as I'd not had any alerts on this.  Thanks to all for your comments.

Just to fill in the gaps he's been hit by every conceivable con, ie investing in a company set up solely for the purpose of issuing millions of pounds worth of shares, with bogus trading activities, where the directors vanished with all the money (since caught and to be sentenced).  Then there were shares bought carrying the names of genuine companies, but where the companies have no record of him as a shareholder and finally (but unlikely to be lastly) him just sending off cheques for £XK with nothing in return, some of these called him back to say sorry paperwork hold up and talking him into another "must have" deal (company about to be floated etc).

The problem is that at 95 and with failing health and eyesight ploughing through the boxes of papers has been a nightmare (for his carer and a friendly stockbroker) but now, the risk is that many of the losses recorded may not actually be losses at all for tax and, as mentioned above, may just be fraud/theft, and, after at least 4 years of claiming past losses I'm dreading having to revisit them all to check.

What I find ironic is that he has a razor sharp mind (ex nuclear scientist!) and is as tight as a ferret's whatever, when it comes to paying me or his gardener but when a stranger calls him up out the blue he reaches for his cheque book?

Funny old life init?

 

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