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Regulation and Compliance > Federal Regulation > FINRA

5 Common Boiler Room Scams to Avoid

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Boiler room-style calls pushing the “next hot stock” are alive and well, according to an Investor Alert issued on Thursday by the Financial Industry Regulatory Authority.

According to FINRA, numerous consumers — particularly seniors — have contacted the regulatory agency complaining of receiving high-pressure phone sales calls urging them to buy penny stocks and other speculative investments.

“Unfortunately, some of those consumers sent — and lost — money,” FINRA says.

FINRA’s advice to help consumers avoid falling prey to a boiler room-style pitch include hanging up on the caller or simply not answering the phone at all. FINRA also discourages investors from making wire transfers or putting investment purchases on a credit card.

FINRA advises consumers to use the internet to check the validity of addresses, phone numbers and other information about the organization or individual.

“Cold calling can be a legitimate way for businesses to connect with potential new customers. But boiler room con artists don’t just take the tactic too far, some might in fact be breaking the law,” Gerri Walsh, senior vice president for FINRA’s Office of Investor Education said in a statement. “Aggressive pitches and repeated calling, coupled with promises of high returns, can signal a scam. If you receive a boiler room call, the best course of action is to calmly say no and hang up the phone.”

In its Investor Alert, FINRA gives several examples of recent boiler room scams it’s encountered.

1. In some cases, according to FINRA, callers use hard-sell tactics to pressure investors into buying shares that promise high returns on “can’t-miss” investment opportunities. FINRA says that repeated, and more aggressive, calls are common, and the investments touted are often low-priced “penny” or microcap stocks.

“Investors who purchase shares often find that the sales pitches are fraudulent and the shares they bought are virtually worthless,” FINRA says.

2. In other cases, according to FINRA, callers could purport to work for organizations that offer stock recommendations. 

“However, the organizations are not registered with FINRA, not associated with any FINRA-registered firm, and in most cases, may not be involved with any legitimate business entity,” FINRA adds. “The callers may use fake names and credentials, or disguise their phone numbers to make it appear as if the call is from a reputable broker-dealer or firm.”

FINRA’s advice is to use FINRA BrokerCheck to verify if a firm or individual is registered to sell securities and to check the background of the individual calling you.

3. FINRA also warns against boiler room-style calls where con artists engage in “pump-and-dump” scams, in which victims are tricked into buying shares through a legitimate broker to inflate a stock’s price.

“One elderly couple was talked into buying nearly $900,000 worth of virtually worthless microcap stocks,” according to FINRA. “Another senior investor purchased more than $500,000 of a microcap stock while on the phone with the caller.” 4. In some cases, according to FINRA, cold callers are simply out to steal a victim’s money, a little at a time.

“One retired investor was talked into sending two checks, totaling $2,500, to what turned out to be a mail drop box, with no actual business associated with the address,” FINRA said.

5. FINRA also notes that not all calls may be cold calls. “Account executives” may contact individuals who have visited or signed up with a website that promotes low-priced stocks, FINRA warns.

“The ‘account executive’ or a person associated with the website will make a hard sell for one or more low-priced stocks or other speculative investments,” FINRA says.

If consumers have questions or concerns about a caller or investment, consumers can speak to a representative at FINRA’s Securities Helpline for Seniors (1-844-574-3577). According to FINRA, it has received more than 5,000 calls and recovered more than $2 million for consumers since it launched its Securities Helpline for Seniors in April 2015.

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