The Dictionary of Financial Scam Terms©: The truth vs. the scam

 

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Boiler Room

 

In a typical boiler room, sales people sit shoulder to shoulder at phone banks all day. They cold call potential investors using sophisticated sales scripts and high-pressure sales techniques...  In most cases, these companies first approach ... investors with an initial proposition of buying a well known, New York Stock Exchange stock only to have the salesperson quickly sell that stock without authorization and then purchase a low-priced, speculative micro-cap security... other characteristics of these schemes are unauthorized transactions; offers of low-priced, unsuitable, speculative securities to conservative investors; guarantees of huge profits; and the representation that the salesperson possesses inside, non-public information that will ensure a stock’s rapid success. 

The object of this fraud is to drive the value of the stock higher and higher as a result of all the stock purchases.  The scammers, having purchased considerable shares of the targeted stock before setting up the boiler room, then sell at the peak causing a major slide of the stock value.  This is sometimes accomplished in a very short period of time with  the fraudsters sell their holding, driving the price down, and the investors do not have time to react to the change.

One of the ways in which scammers drive the price of the stock is by sending out thousands of unsolicited emails (Spam) every day with enticing stock offers.

 

 

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