How not to fall for shady phone deals!
Boiler Rooms Explained
The birth of boiler rooms is in the late 80s, when companies like Sttraton Oakmont (the firm which Jordan Belfort founded in 1989 in Lake Success, NY) started operating in the USA and obviously other countries followed the model and thirty years later the shady scams are still used and even triumphing at times. Basically, the term “boiler room” comes from the high-pressure sales tactics used by these swindlers. The story behind the tactics is about investing on the stock market or in some breakthrough idea which is not yet official (or in the process) and now is the moment to put money on it. Have in mind that some of the shares traded were actually from real public companies but worth only cents, which is why they are called penny stocks (In the United Kingdom they are priced under £1). In USA, these stocks could be a bit more expensive, but less than $5 a share. Since penny stocks are highly volatile, they are perfect for the purposes of manipulation by stock promoters and the pump and dump schemes. Part of the fraud done by the swindlers from Sttraton Oakmont was to boost the price of shares (by presenting the company or the product to be traded as extremely positive) they owned and by doing so to sell the stocks overpriced and then dump them. And of course, people would lose their money once the price goes straight down.
The fraudsters are using shareholder registers to get your name and contact details, but they are not purely limited to phone calls and might also use emails or seminars (the first boiler rooms didn’t have the technology to do so, but these from the late 90s sure did). There is also the much darker theory about the involvement of some military covert listening devices or bugs which are used for obtaining personal information. Since these kinds of devices are known to have been used in cases concerning national security and it is also known that civilians were the targets of those investigations it is not an entirely bad theory to come with. Of course, there is also the scenario of stolen governmental\military information form hackers.
One very common practice of such swindlers is the using of scripts. This idea was introduced by Jordan Belfort to his colleagues, because he wanted them to sell stocks like professional brokers. And the curious part is that everybody could be trained to sell everything, because on the whole net you can find stories about goofs who became top-brokers in matter of weeks, just because somebody gave them a script to read from. I don’t own an actual manual of how to make somebody the next Jordan Belfort, but usually their persuasion centers on investing in. And the put in goes beyond stocks, because swindlers are assuring you that the investment is actually in yourself. Using their silver tongue they throw lines like: “Now you are average, but I’ll teach you how to be special” or “I will tell you about a deal, which nobody else will offer you”. And they might even go further than that with something like: “You are not saying no to me, you say no to you, you say no to your dreams, you say no to your future” (quote taken from an actual closing made by Grant Cardone in one of his public videos on You Tube).
The possibility of you receiving such a call is lower if you are not an official shareholder or you are not as rich as people who have $100 000 in their bank account and almost non-existent if you are unemployed.
But if it happens:
- Don’t get charmed by their silver tongue and rush investing into something you hardly know anything about;
- Don’t give them any form of information about you, personal or otherwise;
- Ask about the name of the firm and hang the phone without hesitation;
- If you are in UK: Check the Financial Services Register at fca.org.uk to ensure a company is properly authorized;
- Report the scam to the Financial Conduct Authority on their consumer helpline;
- Seek a professional opinion from an independent financial adviser or even ask your wife, because sometimes she might be thinking a bit more clearly than you;
The scam is very real and very bad for your finance. The average boiler room victim loses £20 000 and in a year £200 million are lost to phone swindlers in UK alone.
Disclosure: This article is written for informative purposes and only quotes a person like Grant Cardon because he is in the business of closing deals, which is his line of work and does not implicate him as a participant of a scam or a boiler room fraud.
Written by: Lyubomir S. Evtimov