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Securities Fraud Help Center - High Pressure Sales

Did You Know?

Unwary investors lose billions of dollars a year to investment fraud promoted over the telephone.

High Pressure Sales are "boiler room" tactics. Some brokers will push what is called a "house stock". A "house stock" is essentially a stock that the firm wants people to buy in order to artificially increase its value. These "house stocks" are often penny stocks with low revenues and low earnings and are usually not carried by any exchange except the NASDAQ over-the-counter (OTC) market.

High Pressure Sales tactics alone are not a crime, however, if a stock broker has deliberately withheld or misrepresented the material facts in the recommendation or sale of a stock there is a good chance he is in violation of trade laws.

How to 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 don't 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 investment.
  • 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: Don't give customers enough time to back out of sending money.

A stockbroker may be liable if he misrepresents or fails to disclose material facts to an investor in the sale or recommendation of an investment.

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Last updated: December 10, 2007