Five Boiler Room Scams and How To Avoid Them

According to the Financial Industry Regulatory Authority (FINRA), boiler room-style scams are abundant, and targeting the elderly. Boiler room-style calls are high-pressure tactics used by brokers to get customers to buy stocks, usually ones touted as the “next hot stock.” Many times, these are actually penny stocks and very speculative and high-risk investments. Investors should keep in mind that aggressive pitches and repeated calling, coupled with promises of high returns, can signal a scam. Five common boiler room alerts include:

Callers use hard-sell tactics to pressure investors into buying shares that promise high returns on “can’t miss” investment opportunities. Repeated and aggressive calls are common. Sometimes, the sales pitches are fraudulent and the shares bought are virtually worthless.

Callers claim to work for organizations that offer stock recommendations. Sometimes, these organizations are not registered with FINRA or associated with any FINRA-registered firm and may not be involved with any legitimate business entity, entirely.

The callers engage in pump-and-dump scams, in which customers are tricked into buying shares in stock for the sole purpose of inflating its price and then selling it to make a large profit. One elderly couple was talked into buying $900,000 worth of worthless microcap stocks.

Cold callers sometimes steal victim’s money outright. They may tell the victim to send money in check form to a mail drop box, with no actual business associated with the address.

“Account executives” may contact individuals who have visited or signed up with a website that promotes low-priced stocks. That person may make a hard sell for low-priced stocks or speculative investments.