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Boiler Rooms Are Dangerous – In Movies and In Real Life
[Photo: Boiler Room / NewLine Cinema]
by Howard Haykin
If you saw the movies, “Boiler Room” (2000) and “The Wolf of Wall Street” (2013), you viewed first-hand how high pressure brokers can line their pockets at the expense of innocent investors by scamming them into buying worthless or wildly-overpriced securities. ‘Boiler rooms’ are, after all, large-scale operations designed to lure as many investors as possible into an investment scam - often using high-pressure sales tactics through cold calls, emails, text messages, social media and other means.
WELCOME TO REALITY. The U.S. Securities and Exchange Commission (the "SEC") charged Benjamin C. of Fairfield, NJ, with orchestrating a New York-based boiler-room operation that bilked individual investors out of millions. He did so by unloading shares of small, lightly-traded penny stock at inflated prices – thanks to help from traders and salespersons at so-called boiler rooms.
According to the SEC, Benjamin C. first acquired (on the cheap) large blocks of shares in Renewable Energy and Power Inc. (“RBNW”) - a company that was 'going nowhere fast'. He then retained a New York boiler room to artificially ‘pump up’ (promote) the market price and the trading volume of those shares. Over the next 5 months, boiler room salespersons aggressively sold RBNW shares to elderly and unsophisticated investors.
By unloading his shares at artificially high prices, Benjamin C. earned $3.1 million in illicit profits, while unsuspecting investors lost more than $2.4 million.
WHAT TO LOOK OUT FOR. Boiler room schemes resort to:
- Aggressive Sales Tactics or Threats. Hang up when you hear aggressive sales tactics or even threats to swindle you - e.g., threats to file a lien against your property.
- Pressure to Buy Quickly. Understand that no reputable investment professional should push you into 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.
Armed with this knowledge ... you're now capable of resisting pressure from a boiler room. And when it comes to any form of investment, always take your time to investigate thoroughly before committing money or signing any agreements. You're now ready to fight back.
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