What are Boiler
Room scams?
From:www.scamdex.com
With the recent years' bull market and the increase in the number
of retail customers investing in stocks, boiler room operators are back at work
trying to defraud investors.
What are Boiler Room Operators?
Boiler
room operators are sales people who sit in one room making cold calls to potential
investors and trying to pressure them into purchasing worthless investments. They
are usually armed with sophisticated sales scripts and high-pressure sales techniques
used to convince their victims to purchase dubious investments. Their victims
are usually individuals with money such as business people, professionals and
retirees.
Boiler Room: In a typical boiler room, sales people sit shoulder
to shoulder at phone banks all day. They cold call potential investors using sophisticated
sales scripts and high-pressure sales techniques... In most cases, these companies
first approach ... investors with an initial proposition of buying a well known,
New York Stock Exchange stock only to have the salesperson quickly sell that stock
without authorization and then purchase a low-priced, speculative micro-cap security...
other characteristics of these schemes are unauthorized transactions; offers of
low-priced, unsuitable, speculative securities to conservative investors; guarantees
of huge profits; and the representation that the salesperson possesses inside,
non-public information that will ensure a stock’s rapid success. The object of
this fraud is to drive the value of the stock higher and higher as a result of
all the stock purchases. The scammers, having purchased considerable shares of
the targeted stock before setting up the boiler room, then sell at the peak causing
a major slide of the stock value. This is sometimes accomplished in a very short
period of time, the fraudsters sell their holding, driving the price down, and
the investors do not have time to react to the change.
What Type of Investments
do Boiler Room Operators Peddle?
Boiler room operators will try to sell:
- Penny or Microcap stocks
- Foreign Exchange Investments
- Risky
Initial Public Offerings (IPO's)
- House Stocks
Microcap Stocks
or Penny Stocks
In the US microcap stocks are considered to apply to companies
with low or "micro" capitalizations, which refers to the total value of the company's
stock. Many microcap stocks trade in the "over-the-counter" (OTC) market and are
quoted on OTC systems, such as the OTC Bulletin Board (OTCBB) or the "Pink Sheets."
They usually do not have to file financial reports with the Securities and Exchange
Commission. In Canada, microcap stocks are referred to as penny stocks which loosely
means stocks whose stock price is less than a $1.00. The reporting requirements
in Canada do require penny stock companies to file financial statements.
In
both cases, however, these stocks are thinly traded and therefore subject to price
manipulation by unscrupulous promoters and company insiders.
Foreign Exchange
Investments
Scam artists try to solicit money for investments in exchange
instruments traded in foreign markets during periods of financial crisis in such
markets. The promoter tries to convince its callers that certain foreign exchange
instruments are good investments which are currently undervalued because of such
crisis which presents a tremendous buying opportunity. The investments are usually
fictitious.
Risky Initial Public Offerings (IPO's)
Companies that
are initially becoming publicly traded companies usually do an initial public
offering to raise money. While many of such offerings are worthwhile investments,
many are risky ventures. The boiler room operator will tend to downplay or neglect
to tell the investor the negative aspects so as to ensure the investor proceeds
to invest. Many boiler room operators will try to sell IPO's that are underwritten
by the investment firm for whom they work. "Underwritten" means that the investment
firm either has been hired as an agent to find buyers for the initial offering
or has purchased all or some of the initial offering itself and now is trying
to resell it to the public, usually at a profit. Accordingly, these boiler room
operators are in a conflict of interest since they are looking out for the interest
of their company and not that of their clients.
House Stocks
House
stocks are stocks that an investment firm has purchased themselves to resell at
a profit. Consequently, brokers of these house stocks will try to manipulate the
market by buying stock of thinly traded companies. They will pump these stock
prices up to higher prices and then sell them to their clients at a profit. The
clients will find that there are no other buyers to buy their stocks. Consequently,
without buyers, the stock price will fall leaving many unsuspecting investors
with worthless stock.
Additional information:
Avoiding
Boiler Rooms in Stock Fraud Swindles and BoilerRoom Investment Schemes
Read also Article 26 - various kinds of consumer fraud | 
