to Spot and Avoid "Boiler Room" Scams
American Securities Administrators Association estimates that unwary investors
lose billions a year to investment fraud promoted over the telephone.
Self-employment scams and high-tech schemes are among investments most recently
heavily promoted by phone. This tip sheet is designed to provide investors with
self-defense tactics to fight off the promotion of investment scams by "boiler
rooms," the high-pressure phone sales operations from which sales people call to
promote abusive and fraudulent deals.
Spot a "Boiler Room" Scam
High-pressure sales tactics Salesmen may make repeated calls and even
become abusive, questioning, for example, the intelligence of anyone who would
pass up such a "sure thing."
Outrageous promises of extraordinarily high profit at little or no risk
The rule is: The higher the return, the higher the risk. Listen for salesmen who
claim it is possible to make extremely high (15, 20 or 30 percent) or even
"guaranteed" profits without any risk of loss. Most legitimate firms will
provide written materials clearly disclosing the potential for loss in an
investment, as well as its short- and long-term tax implications.
A demand for an immediate decision Boiler room salesmen want fast action
before you have a chance to develop second thoughts or consult with a
professional for advice. As a result, many deals will be "gone tomorrow," "sold
out today" or have "just one of two remaining openings."
A reluctance to provide information about the sales firm or the investment
If a boiler room is uncovered, it may be subject to state or federal action.
Therefore, some phone scam operators are not forthcoming when asked information
about the sales operation and investment.
Mumbo-jumbo about "inside information" or "secret" technology In order
to close a sale, the voice on the other end of the phone may tell you that this
is a "sure thing." A common claim is that celebrities, major corporations or
banks will be investing shortly. Or the salesman may claim that a new geological
report is coming out shortly. In other cases, the claim may be that the company
is using some sort of hush-hush "black box" technology that makes it possible to
process gold at a fraction of the cost paid by other firms.
Delayed delivery of the product and/or profits This is a classic "red
flag" of an investment scam. If you donít have your investment in hand or under
your control in some other location, you have nothing for your money. Beware of
promises involving delays of more than a few weeks for delivery of your
Unusual arrangements for collecting funds from investors Some con
artists try to avoid mail fraud charges by using overnight courier services
(Federal Express or Purolator, for example). Other phone scam operations go even
further-sending a courier or cab to pick up the check. No matter what unusual
collection method is used, the purpose is the same: Donít give customers enough
time to back out of sending money.
What to Do if You Are Contacted by a Phone Scammer
hounded by high-pressure tactics, hang up.
Be wary of
advertisements in newspapers and other publications which give little or no
information other than a toll-free telephone number.
make an immediate decision. Get written information first about the firm,
the sales person, and the investment.
part with your money until you seek out a professional (lawyer, accountant
or broker) for advice.
investments you do not understand. The greater your degree of ignorance, the
greater is the chance that you will be swindled.
give out your credit card number over the phone to strangers.
your state securities office to find out if the boiler room and sales person
are registered to do business in your state. If an investment is being
promoted, the firm and agent must be registered to sell into your state.
(Contact the Georgia securities division at 1-888-733-7427 or 404-656-3920
or call NASAA toll-free at 1-888-84-NASAA.) In California, all boiler rooms
must also be registered with the state. A call to the Better Business Bureau
in the city in which the firm is located may turn up calls from investors
who have been victimized.
If you suspect
that a phone scammer has contacted you, notify your state securities office of
the firm and the name of the salesman. Prompt action on your part may protect
less wary investors.
investments promoted over the phone are legitimate. The wise investor will
follow these simple steps in order to be able to distinguish the "good" from the
"bad" in telephone solicitations.