From Wikipedia, the free encyclopedia

The term boiler room in business refers to a busy center of activity, often telemarketing or other types of sales. It typically refers to a room where tele-marketers work, often selling stocks, and using unfair, dishonest sales tactics, sometimes selling penny stock or other fraudulent stock. The term carries a negative connotation, and is often used to imply high-pressure sales tactics and sometimes, poor working conditions.

A boiler room usually has an undisclosed relationship with the company being promoted or undisclosed profit from the sale of the house stock they are promoting. The boiler room starts the process off as a bridge loan. When a small company is looking for financing, they look to an investment bank to raise capital. Usually this is a legal procedure but most boiler rooms perform this function for companies that don't exist. After the managers of the boiler room invest money through the phony company or shell, they can either (A): Underwrite an IPO (Initial Public Offering) or (B): back the phony company into a "shell" company that has gone out of business and no longer trades, usually on the OTC pink sheets or the Bulletin Board market that carry many small and thinly traded stocks.

Then a boiler room promotes (via telephone calls to brokerage clients or spam email) thinly traded stocks where there is no actual market. The brokers of the boiler room actually "create" a market, that give the people who originated the bridge loan/Private placement or owners of the company enough volume to sell their shares. The managers of the boiler room usually have close ties to the same owners of the company whose stock is being promoted. After the selling force of the boiler room sells their clients on the idea of the IPO, they are not allowed to sell the shares that the customer invested. This is because there is no real "market" for the shares. And any shares sold create a large loss in the price of the stock, due to it being thinly traded with no public support.

The U.S. Securities and Exchange Commission paints the following; ^[1].

Some traits of a boiler room include presenting only good news about the stock to be sold, and discouraging outside research by customers or brokers working there.

The term is likely to have originated from the cheap, hastily arranged office space used by such firms, often just a few desks in a the basement or utility room of an existing office building. The term is a fitting analogy due to the secretive nature of these firms, the connections with the company they are promoting and the high-pressure nature of their activities.

• Bucket shop
• Forex scam
• Glengarry Glen Ross
• House stock
• Microcap stock fraud
• Stock dilution

• SEC – "Portrait of a Boiler Room"
• FSA – "Share scams"
• The Motley Fool consumer website – Boiler Room FAQ
• This is Money – "UK court halts boiler room scams"
• Sky News – "Anatomy Of A Boiler Room Bust" – Profiting from shorting the inflated prices of equities ramped by boiler rooms