HOUSES have been raided in the first criminal investigation into boiler-room scams.

Police in County Durham and North Yorkshire joined forces with the Financial Services Authority (FSA) to search properties thought to have been used to run or support an illegal investment operation connected to overseas boiler rooms.

Similar raids by police officers and FSA investigators were carried out in London and Hampshire, on Wednesday.

Two men were arrested in connection with the investigation into Universal Management Services (UMS), which the FSA believes has been helping illegal boiler rooms overseas.

Boiler room operations usually work by employing people to cold call unwary investors and pressure them into buying worthless shares.

The sales force is usually housed in a cramped room where conditions are almost unbearable - like a boiler room.

Boiler rooms are not authorised by the FSA and act illegally by selling and promoting the sale of shares in the UK.

In the majority of cases, the shares being sold are worthless and the boiler room vanishes, leaving the investor out of pocket.

The company whose shares are being traded may be an innocent victim.

The investigation followed complaints from consumers, who had been told by known boiler rooms to make cheques payable to UMS.

Investigators discovered that in a 12-month period, UMS, together with related organisations GS Asset Management and Continental Administrative Services, sent more than £5m of investors' money overseas.

The FSA has obtained orders freezing assets of £5,450,000 relating to the inquiry.

Jonathan Phelan, head of retail enforcement at the FSA, said: "This is the first time we have taken this action and it shows that we will not hesitate to use our powers to protect consumers, including launching criminal investigations where appropriate."

Mr Phelan urged investors to be cautious when they are cold called by any firm offering to sell shares and to always ensure they are FSA authorised before making any financial agreement.

The investigation is ongoing.

Anyone found to be operating an unauthorised financial service could be charged under the Financial Services and Markets Act 2000 and face two years' custody.

UMS customers are asked to call the FSA consumer contact centre on 0845-606-1234.