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City boy: 'We were aggressive with our sales pitch and didn't give risk warnings if we could avoid it'. Photograph: Grant Smith/Rex Features
Pacific Continental Securities was possibly the UK's most notorious firm of stockbrokers. Its team of young salesmen used high-pressure tactics to lure clients into buying shares that for most investors were almost a guaranteed route to financial ruin.
After a wave of complaints, the Financial Services Authority finally banned the firm from taking on new business last year. Pacific Continental went bust shortly afterwards.
But as hapless investors lost their savings, the brokers raked it in.
Today a former broker at Pacific Continental reveals how he was encouraged to make false and misleading claims to sell shares - and warns that many of his former bosses and colleagues have now moved to other City firms. Innocent individuals, he claims, are still being plagued by the same high-pressure sales tactics used to sell ultra-risky stocks.
Let's call our whistle-blower John Hunter, although that's not his real name. He has asked us to change it because he has now made a fresh start in life outside of stockbroking. He hopes his story will warn investors to stand well clear of what he describes as "just-about-legal boiler rooms".
John's story
"I am not proud of my career at Pacific Continental. I caused innocent and trusting people to lose money.
But, and I know some will be sceptical about this, I feel conned myself.
When I left a temporary job in 2005, I wanted to work in the City. I knew I was not an automatic prospect.
I had left school at 17, skipped university and my only work experience was in a shop. But I was determined to succeed.
I sent off 60 letters to City firms and recruitment agencies. All ignored me, except Pacific Continental and one other. I opted for PacCon because the other company was so over-the-top, promising that I'd soon be driving a Ferrari. That was ridiculous.
Before I started at PacCon, I had to pass FSA papers in regulation and securities. They were easy to answer. At PacCon's Cannon Street offices, I was surrounded by young people - almost all male. Many were effectively barrow boys. We all thought we had made it as City stockbrokers.
There was no formal training. The way it worked was that four or five juniors would report to a desk head. I later learned my desk head had previously worked for a Barcelona boiler room. I was paid £18,000 a year plus commission. But desk heads earned a lot more. My job was to phone "leads". We got some from a "marketing company". If anyone asked, we would refer to some form they had filled in or some sort of market research they had helped with.
Under FSA rules, we were told to ask "know your customer" questions. These were designed, in theory, to weed out those for whom the small company stocks we sold were unsuitable.
We often asked questions in such a way the customers would give the answer we needed. We would encourage people to exaggerate their earnings and portfolio.
Few wanted to be thought of as "scared" of small company shares.
My desk head gave me a script which, he said, was "what you need to say under FSA regulations".
We were aggressive with our sales pitch and didn't give risk warnings if we could avoid it. I was encouraged to browbeat customers into a sale - in fact, it worked that anything was fine if it resulted in the punter buying. I was new to this and thought PacCon methods were normal. With commission, I earned £2,000 a month.
One stock I sold shares in was New Millennium Resources. It was listed on AIM and involved in mining in Angola. We were told to tell clients about the press releases this company put out, detailing its new diamond finds. It was a good story to sell - and I got rid of about £40,000 in this one - including £5,000 to an elderly lady.
Whenever any of us made a big sale, we'd shout, clap and cheer - even laugh if the customer had caved in for a big amount without a fight. Then we'd be praised in the office and taken out by the desk head - champagne and, for some, strip joints. And we'd move up a place on the sales board which recorded our success.
The real money was made by desk heads. They could earn up to £750,000 a year by "re-dealing" - selling more to the clients you had softened up. This might be another stock which was promised to replace the losses clients made in the original shares we pitched. They were the real power - the ostensible heads the FSA talked to used to just sit in their offices playing solitaire.
Calls were apparently recorded but there was no oversight and no one ever listened to them. If you were really outrageous, you'd get a verbal warning but it was seen as a joke.
In spring 2006, New Millennium was delisted from AIM and the shares I sold for up to 10p became effectively worthless - they were never sellable at a profit. I then started asking questions which did not make me popular - they told me to shut up and sell.
So how did we get the price up so high? It was through "stock supporters" - someone with an interest in the shares who would put out press releases and buy a few thousand shares. By spending perhaps £300, they would double the share price - if one person bought and no one sold, the value soared. Clients were never encouraged to sell; after all, we wanted to flog shares we'd bought from the promoters at a big discount to our asking price.
When the penny dropped after six months, I realised what we told clients was, charitably, very optimistic. More honestly, it was totally imaginary. I felt like total crap. I knew I had stolen from clients just like a mugger, but I was grabbing more than a mobile. I felt like a coward - I had never met my victims. I'm not specially moral but I was really shocked this was all legal.
Other than FSA approval and a City base, the firm was just like a boiler room. It was outrageous, but what is even more outrageous is how some ex-colleagues have set up lookalike firms. They know they are in the wrong - one even has a bodyguard in case angry punters pay to have him eliminated. All I can now say is sorry."
· Pacific Continental Securities (UK) went bust in June 2007. Insolvency practitioners Smith & Williamson sold the assets to Brooklands. PacCon was wound up in March 2008.
Investors who show mis-selling can now lodge claims with the Financial Services Compensation Scheme (go to fscs.org.uk). Claims could total £250m.
t.levene@guardian.co.ukOriginal here
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