Stock Fraud And Boiler Rooms

No one likes to get scammed, but unfortunately it happens

. Stock fraud occurs when investors are induced into parting with their money based on false information that violates securities laws. Whether it's through Microcap stock fraud, insider trading, internet stock fraud, mutual fund fraud, accountant fraud or boiler room fraud, stock fraud can bring severe capital loss and financial and personal devastation to its victims.

Though it's popularly believed that boiler room operations are from a bygone era, or even fictional, boiler rooms are in fact prevalent across the world today. With boiler room stock fraud, misleading, high pressure sales tactics are used to persuade victims to purchase a house stock. Boiler room brokers operate by randomly cold calling numbers in telephone books and persuading those on the other end of the line that this is a deal they just can't pass up.

Boiler rooms are often hastily set up in empty, inexpensive offices, with many "brokers" crowded together at shared desks within a small space. The U.S. Securities and Exchange Commission describes these stock fraud brokers as commonly being lined up "cheek by jowl" in a room no bigger than a basketball court. Brokers are more like telemarketers, often with no financial or investment qualifications whatsoever. Instead, they are trained in sales tactics and are given scripts to follow to promote the organization's house stock. Telemarketers generally are not allowed to stray from the set scripts in any way.

Boiler room telemarketers are usually required to attend sales meetings every morning where they receive the scripts for marketing the day's house stock. They then make cold calls to dozens, even hundreds of people across the world, hoping for a win. Telemarketers will present only good information about the stock, and will discourage the person on the other end of the line from doing research into the stock and thinking things over before making a decision to buy the stock. They usually use language like "you won't ever get an opportunity as good as this," and persuade people to get in on the opportunity now, as it won't last.

Boiler rooms promote thinly traded stocks (for companies they have a relationship with) for which there is no market or public support. The boiler room telemarketers create a market for these stocks by persuading people to buy the stocks; this drives up the stocks' value, the companies sell their stocks at a profit, and victims' investments are rendered worthless. Once victims realize they have suffered stock fraud, they will try to call their "brokers" for assistance, but telemarketers then make themselves impossible to contact.

To avoid becoming the victim of boiler room stock fraud operations, always be wary and exercise caution and common sense when you receive a call that promises an investment that will bring you large profits. If you are the victim of boiler room stock fraud, stock market recovery companies may be able to help you recover your money, either through arbitration or mediation.

by: Mark Etinger

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