What is a boiler room?
In architecture, we refer to a boiler room if we talk about the area where the boiler or heating and steaming equipment is found. In a sense, the boiler room in investments has the same idea. It is not literally a room that generates heat. It is a room that has a massive intensity of calls. This place is like an operation or call center where high-pressure salespeople call people interested in investing. For additional information, we call this list “sucker list.” On this list, we can find names of people who were already scammed before. These salespeople try to peddle speculative securities. Some may even try to sell fraudulent ones.
Why was it called boiler?
Before, people ran operations where high-pressure selling happened in the basement. These brokers would only give positive information about the stocks on sale and leave all the negative information. They discourage potential investors from researching what they are selling. They usually coin phrases such as “It’s a sure thing” and “It’s a once in a lifetime chance.”
The National Association of Securities Dealers sets rules of fair practice. Boiler rooms operations mostly violate these set rules if they are not illegal. In fact, the estimated amount that investors lose annually from fraudulent scams is not only millions of dollars but billions.
What happens in a boiler room?
Boiler room staff reaches out to investors in cold calls. Cold calls are unsolicited calls to people who were never in contact with the salesperson. So, the potential investor does not know what the salesperson is talking about because there is no history yet. He would have no way to prove whether the salesperson is giving legitimate opportunities or not. So, while there is no way to confirm the salesperson’s legitimacy, the potential investor also has no way to disprove the claims.
Hence, SEC advises all investors to do research and background checks on the salespeople they engage with. Investors should always check if they’re registered on the investors.gov website.
Pressure salespeople need to assert the investment opportunity, so there is no way for the potential investor to verify what they say. They will insist on immediate payment. The approach is hostile, so the potential investor has no choice but to act. They pressure using a promise of high returns without risks, which is too good to be true.
Some convince investors to overspend on securities that have cheaper actual value. Unfortunately, some of these securities do not even exist or are worthless. This money will all go to the people behind the boiler room. There are many scams that people do using the boiler room, including binary options fraud, microcap fraud, and advance fee fraud.
The unfortunate truth
We earned a lot of benefits from technology. However, there are also downsides, and this includes the variety of boiler room operation and location. Technological advancements made it possible for scammers to run boiler room operations aside from basements and phone calls alone. They can now do it anywhere on the internet using electronic messaging like email, texts, social media, etc.