Boiler Room Scams (Explained: All You Need To Know)

Looking for Boiler Room?

What is a Boiler Room scam?

What’s important to know about it?

Keep reading as we have gathered exactly the information that you need!

Let me explain to you what a Boiler Room scam is and how it works!

Are you ready?

Let’s get started!

What Is Boiler Room

A boiler room refers to a place where salespeople get together to force investors to invest in highly speculative investments or scam investors out of their money.

The boiler room could be any location where high-pressure salespeople operate but it’s typically considered a call center.

The reason why it’s called a “boiler” room is that salespeople use “high-pressure tactics” to compel investors to invest.

The objective is to call individuals and pressure them to invest some money.

However, the money invested will be used to push prices on speculative securities or con investors out of their money.

In the United States, the Securities and Exchange Commission prohibits boiler room tactics.

Investment dealers are prohibited from selling securities on the basis of false information, misleading statements, or deceit.

Keep reading as I will further break down the meaning of boiler room scams and how they work.

Recommended article: What is “pump and dump”

How Does A Boiler Room Work

In investing, a “boiler room” refers to a place or location where salespeople pressure investors into buying securities that are either highly speculative or even non-existent. 

A boiler room can be located anywhere really, such as in a basement of a home or in an office building.

In most cases, boiler rooms are call centers where high-pressure salespeople get together to operate their scams.

Typical boiler room tactics are to provide investors with very positive information about a particular stock or investment leading the investor to invest.

The information can be misleading, false, and even deceitful.

Another tactic that may be used is to force someone to invest through hostile methods such as threats.

Investors will fall into a boiler room trap when they are given false promises of high returns, are told that the investment will provide them with good income, and are pressured to act fast based on a false belief of a sense of urgency.

There are many types of fraudulent scams that can be executed through boiler room tactics such as microcap fraud, advance fee fraud, or binary option fraud.

Investors should be cautioned not to invest with individuals they do not know, through cold calls, and without having verified that the salesperson is duly licensed or not.

Recommended article: What is “insider trading”

Boiler Room Characteristics

Although boiler room scams can vary in scope and mode of operation, they will typically have some common characteristics.

The first characteristic of a boiler room is that the operator will tell the victim that they have been specifically selected for their exclusive offer.

The victim will be told that the operator has non-public information that they are willing to share specifically with the victim so they can invest before the public becomes aware of the opportunity.

The second characteristic is that they will present the investment as a great investment where you are guaranteed to make money by taking little to no risk.

In essence, the scam artist will tell the victim that the investment is a “sure thing” or will definitely generate significant returns.

In addition, the operators will push the victim to make a decision by creating a false sense of urgency.

They will say that the investment opportunity is not available for long and it’s important for the investor to act quickly.

To be able to get access to this unique investment opportunity, the investor must invest now and wire the money as soon as possible.

Very often, the money is sent offshore.

If you see that someone is presenting you with an investment opportunity with these characteristics, you should take a step back and investigate the matter further.

Recommended article: Painting the tape in investing

Avoiding Boiler Room Scams

There are many people out there looking to take advantage of investors.

It’s important to know how to spot boiler room tactics so you can avoid becoming a victim of their high-pressure sales tactics.

The first red flag that you should consider is that boiler room operations will typically make cold calls or send large-scale unsolicited emails offering you an amazing investment opportunity.

Another potential sign that you may become a victim of a boiler room scam is that the salesperson will only provide you with positive information about a particular stock or investment.

In other words, the investment opportunity is presented as a sure thing or something really amazing that you cannot miss out on.

In addition, the salesperson will provide you with arguments that you should invest based on factual elements that are hard to validate.

The boiler room scammers will also use false information to convince investors to invest, omit material facts about the investment, or exaggerate facts or their track record.

Recommended article: What is a Ponzi scheme

Boiler Room Scam Examples

Let’s look at a few examples of boiler room scams to better understand the concept.

The first common boiler room scam is the sale of penny stocks.

The way it works is that the boiler room scam operators will purchase penny stocks at a low price.

Then, they will use boiler room tactics to have investors invest in the stock in such a way to create an upward pressure on the stock price.

When the stock price goes up, the boiler room operators will sell their penny stocks to cash out their profits.

This scam works on penny stocks as there may not be a lot of information available on the stock and they may only trade in over-the-counter markets.

Another example of a boiler room scam is to push investors to invest in a startup.

The scammers will inform the investor that a startup has developed a new revolutionary product.

Investors are asked to invest in the startup before the company’s value goes up.

It’s important to note that boiler room tactics can apply to investments or anything else that the operators are looking to sell.

Very often, telemarketers will prepare a sales pitch or script leading their victims to invest or take a specific action.

Recommended article: What is settled cash in investing

Boiler Room FAQ

What does a boiler room mean?

A boiler room is a place where scam artists operate to financially scam their victims.

The “boiler room” refers to a makeshift office where the con artists operate.

They identify their victims and use different tactics to lure them into making an investment.

They call their victim list a “sucker list” as they are people that they consider vulnerable to manipulation.

How to protect yourself against boiler room tactics?

You can protect yourself against boiler room tactics in several ways.

The first thing you should do is to avoid sharing your personal information with salespeople that you do not know.

Don’t give out your personal information, email, phone number, bank account information, or other.

Then, you should take your time to verify the investment opportunity to ensure it is legitimate.

You should also ensure that the salesperson is duly licensed or qualified to give you investment advice.

Finally, if you see that something is strange or you are feeling a lot of pressure, don’t invest your money and report the scam to the authorities.

Who is vulnerable to boiler room scams?

Those who are the most vulnerable to boiler room scams are individuals who have money to invest.

Since the victim is actively looking to invest money, they may be more tempted to invest in something that appears to generate high returns while exposing them to low risk.

Also, the victims tend to be more than 50 years of age or individuals who are retired.

Older investors may be more tempted to invest their money as they may not have the time to actively follow the market.

Recommended article: What is market risk

Takeaways 

So there you have it folks!

What does boiler room mean in business?

In a nutshell, a boiler room generally refers to a call center or location where the operators sell speculative, questionable, or fraudulent investments.

Typically, boiler room agents will use dishonest, unfair, and misleading information to convince their victims to invest money in a particular stock or purchase a particular product.

Very often, boiler room tactics are used to push penny stocks where the operators are looking to profit on their own investments by generating market demand and pushing the price upward.

The individuals that are targeted by the boiler room tactics are those that make decisions on emotions, are susceptible to manipulation tactics, and will make impulsive decisions.

Now that you know what a boiler room is and how it works, good luck with your research!

You May Also Like Related to Boiler Room Meaning