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Seven Arrested in U.K. Over $42 Million Share-Scam, FSA Says

By Caroline Binham

May 6 (Bloomberg) --

Seven people were arrested across London and south-east England on suspicion of operating a share scam that defrauded victims out of as much as 28 million pounds ($42 million), Britain’s financial regulator said today.

Six men and one woman were taken into custody after an international probe of a “boiler room” operation, the Financial Services Authority said today in a statement. Officials from Malta and other European nations collaborated to arrest the suspects in the counties of Surrey, West Sussex and Hertfordshire, England, and in London, the FSA said.

The probe “focuses on share fraud and boiler-room activity” in the U.K. and Europe that “has taken approximately 28 million pounds of victims’ funds,” the FSA said.

Fraud siphons 14 billion pounds out of the U.K. economy a year, according to the Attorney General Patricia Scotland. Boiler-room schemes take in around 300 million pounds, according to FSA data. The credit crisis may increase the amount of fraud because criminals often persuade “desperate” victims to part with their money, according to police.

The FSA said last week it was investigating five share scams and Ponzi schemes where total losses are estimated at 170 million pounds. A Ponzi scheme, like the $65 billion scam to which U.S. financier Bernard Madoff pleaded guilty in March, uses new investors’ money to pay off old ones.

Boiler rooms are fake stockbrokers that aren’t authorized to sell shares and are typically based overseas, beyond the jurisdiction of the FSA. They target names on the U.K.’s shareholder register and sell them stock of little or no value.

To contact the reporters on this story: Caroline Binham in London at cbinham@bloomberg.net