A boiler room is an outbound call center which sells questionable investments to unwitting consumers. The salespeople use strong arm tactics to push people into buying.
Boiler rooms often focus upon penny stocks although private placements are used. In the end, much of this equates to stock fraud.
The operations are often supplemented with informercials and other advertisements meant to generate leads.
Structure
There is often a relationship between the boiler room and the entity being promoted. This is obviously no disclosed. Unknowing buyers are actually aiding the insiders who are in place long before the operation starts.
A common tactic is a pump and dump scheme. This is often done by licensed brokers. They are legally trading securities, just like any other brokerage firm. The main difference is the fact that what is being promoted to the buying public is held by those behind the fraud. As the price escalates due to the selling, the insiders of the scheme dump their stock. Once they remove themselves from the equation, the price usually collapses as there was no value to begin with.
The main tactic of the boiler room is to generate excitement. Often, the hype is framed as some unreleased announcement of some type of breakthrough for the company. The promoters prey upon the greed of people by claiming the stock is going to see large appreciation once the news gets out. Of course, to take advantage, the individual has to get involved.
Boiler Tactics
There are some commonalities among boiler rooms.
They are:
- Aggressive Sales Tactics or Threats. Fraudsters may use aggressive sales tactics or even threats (for example, threatening to file a lien against your property) to swindle you.
- Pressure to Buy Quickly. No reputable investment professional should push you to make an immediate decision about an investment.
- Unsolicited Offers. Be wary of any investment offer you didn't ask for, especially if you don't know the sender.
- Promises of High Returns with Little or No Risk. Every investment carries some degree of risk, and the potential for greater returns usually comes with greater risk. If it sounds too good to be true, it is.
Popular Culture
Boiler room operations were central to films such as Boiler Room, Glengarry Glen Ross which focused upon real estate, and The Wolf of Wall Street.
The success of these projects show the public's fascination with Wall Street scandals.