A boiler room scam gets its name from the high-pressure sales tactics used to push people to part with their money – often for shady or non-existent investments.

Most commonly, business owners will receive a cold call with details of a seemingly excellent investment opportunity. Scammers tend to start with a relatively small investment and then pay out small dividends to gain the investor’s confidence.

After that, they’ll offer another investment opportunity that will be dressed up to appear more lucrative but requires a larger investment. More often than not, the investor will never see this money again and will be unable to withdraw any of the cash they’ve put into the offers.

Nowadays, many of these operations are run overseas where legislation isn’t as strict as in Australia. The investors will not have the required licences to run their operations, but they will usually set up fancy websites with convincing material to build trust with investors.

Below, we break down boiler room fraud, explaining how it works, its warning signs and what to do if you’ve been targeted. Read on to discover how to keep your savings safe from these call centre scams.

What is a boiler room scam?

The term “boiler room” originated from the early practice of conducting such operations in the basement or boiler room of a building. Nowadays, a boiler room scam usually operates out of a call centre, wherein salespersons employ aggressive, deceptive, and illegal techniques to coerce unsuspecting individuals into investing money, buying stocks, or acquiring software programs purported to offer accurate stock advice.

Brokers employing boiler-room tactics typically provide customers with solely positive information about the stock while discouraging them from conducting independent research. Lists of previous victims, known as “sucker lists,” are often used to target the victims again.

Such call centres can be situated anywhere across the globe and often operate throughout several jurisdictions. This strategy hinders law enforcement’s ability to track down fraudsters and poses challenges for investors seeking to recover their funds.

How a boiler room scam works

Individuals involved in boiler room schemes typically initiate contact with investors via cold calls, which are unsolicited calls to individuals with whom the salesperson has no prior relationship.

This strategy leaves the recipient without any prior knowledge or background to evaluate the caller’s claims. While this lack of familiarity may lead to scepticism, it also prevents the recipient from refuting the claims based on past interactions.

High-pressure sales tactics often involve making assertions about the investment opportunity that the recipient cannot independently verify. Salespeople may demand immediate payment or adopt an aggressive stance, coercing the recipient to take action. They may also entice prospects with promises of high returns and minimal risk to persuade them to invest.

Boiler room tactics are frequently employed to persuade investors to overpay for securities that are actually of lesser value. These securities may even be worthless or non-existent, with the funds raised serving only to enrich the individuals orchestrating the scheme.

Boiler room operations can also be used to carry out different types of scams, such as binary options fraud, advance fee fraud, and microcap fraud.

Crucially, these schemes are no longer confined to literal boiler rooms; they can operate from various locations such as offices or private residences. Additionally, boiler room salespeople may utilise alternative methods to contact prospects, including electronic communication such as emails, text messages, and social media platforms.

How to spot a boiler room scam

High-pressure sales ploys

The biggest indicator of a boiler room scam is a high-pressure desire or requirement for you to act quickly. Legitimate investment companies are happy for you to make money at any time, and while they may suggest quick movement from time to time, they won’t harass you to keep investing in one offer.

Promises of exceptionally high returns

And last, but by no means least, if an offer seems too good to be true, it surely is. If you’re given huge promises of profit with little or no risk, there’s something off. A legitimate company will be sure to make you aware of any risks to cover themselves if nothing else.

Access to ‘inside information’

If your contact is offering you ‘inside information’ or something else that sounds fishy, there’s a good chance something is amiss. They may tell you that a bank or major corporation is going to invest soon, but this is most likely a lie. Ask yourself why a stranger would share this information with you before you make any investment.

A lack of information about the investment or firm

On the other end of the spectrum, some boiler room operators may be evasive when pushed for more information about their investment scheme, team or operations for fear of being figured out.

Offshore bank accounts

Another red flag is that the caller asks for money to be sent to an offshore bank account in a company name, which is usually a different name than their own company name.

Fraudsters use foreign-based money laundering agents to clean the money in boiler room frauds so it’s difficult to trace the actual offenders involved or their real locations.

Boiler room examples

Boiler rooms have gained notoriety for employing unethical sales methods, although the specific techniques are constantly evolving. Below are some instances illustrating how tactics can vary:

Software scams

A boiler room scam doesn’t necessarily focus on selling securities. For instance, in a case from 2015 in Queensland, Australia, authorities uncovered a boiler room peddling sports betting software.

As reported by ABC, telemarketers adhered to a meticulously crafted script, persuading Australian investors to part with millions of dollars by promising extravagant returns of up to $80,000 annually. The scammers utilised aliases, fabricated testimonials, and even bribed local law enforcement for protection.

Penny stock scams

Penny shares are categorised as small enterprises that have a trading value below $5 per individual share. The majority of these penny shares are too insignificant to be listed on regular stock exchanges, thus they are only traded on the over-the-counter market.

Consequently, a relatively limited number of purchasers have the potential to cause a substantial price increase. Typically, the operators initially accumulate shares from low-priced small-cap companies and then employ aggressive sales tactics to attract buyers at an artificially inflated price.

In this type of scheme, unsuspecting victims may mistakenly believe they are purchasing shares on the open market when in reality they are purchasing directly from the fraudulent operators.

What to do if you are contacted by a boiler room scammer

Although the company will tell you that there’s a time restriction on any investment made, it’s important to do due diligence before investing any money. One of the first steps you should do is check the government’s list of known companies that operate boiler rooms or carry out other types of investment fraud.

Often, a quick Google search will bring up interesting results. Search the company name to see if there are other reports of scams or frauds. Searching for the keywords ‘company name + scam’ could highlight these cases.

Sometimes, people will pretend to be from legitimate companies when they have no affiliation. Try phoning the company’s number on the website to see if you can get through to your contact or not.

Before giving out any money, make sure you speak to a professional for advice. A lawyer or accountant can help keep your feet on the ground and stop you from making a costly mistake.

Learn more about what to do if you have been scammed in Australia.

How to report a boiler room scam in Australia

If you are a victim of an alleged boiler room scam, inform local authorities as soon as possible. This can help in identifying the perpetrator and potentially recovering your lost funds.

However, due to the international nature of boiler room scams, it can be difficult for law enforcement to track down the scammers. That’s why taking swift action when targeted by a boiler room scam is essential.

If you’re in Australia, report the scam to the ACCC. This not only helps in warning others about the scammers but also initiates appropriate measures against them. Additionally, it’s important to notify Australia’s national fraud reporting platform.

Lastly, don’t hesitate to contact the experienced boiler room scam investigators at IFW Global. Equipped with decades of expertise, our team harnesses advanced investigation techniques to uncover crucial evidence to aid asset recovery.

Learn more about boiler room scams

Boiler room scams have been around as long as the stock market. Although they no longer occur in actual boiler rooms, the general method remains unchanged: brokers employ unethical strategies to promote ‘investments’ without revealing their hidden drawbacks.

If you believe that you have been targeted by a boiler room scam, take urgent action and seek expert assistance from our private fraud investigation agency. Book a consultation now.

To find out more about how to prevent being scammed, download our free ebook: Online Investment Fraud: Recover Your Stolen Assets. You’ll learn about activities affecting Australian companies and how IFW Global helps to recover assets in international cases.