FINRA Publishes Guide on How to Detect a Boiler Room Scam

The Financial Industry Regulatory Authority (FINRA) today published an Investor Alert informing consumers about boiler room scams.

According to FINRA, which 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: “Boiler room-style calls touting the next hot stock are alive and well, and they’re costing investors dearly.”

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The Investor Alert is in response to FINRA having been contacted by numerous consumers, particularly seniors, who have complained about receiving high-pressure telephone sales calls urging them to buy penny stocks and other speculative investments. Unfortunately, some of those consumers sent and lost money.

Gerri Walsh, Senior Vice President for FINRA’s Office of Investor Education, commented: “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”.

Signs of a Scam

FINRA’s Alert lists a number of common characteristics of boiler room scams that potential investors should look out for:

1. Callers use hard-sell tactics to pressure investors into buying shares that promise high returns on “can’t-miss” investment opportunities where repeated and more aggressive, calls are common. The kind of investments touted tend to be low-priced such as penny stocks. Investors who get caught out in this way find that the shares they bought are virtually worthless.

2. Callers purport to work for organisations that offer stock recommendations but are not registered or associated in any way with FINRA. In many cases, they are also not involved with any legitimate business entity and may use fake names and credentials to make it appear as if the call is from a reputable broker-dealer or firm, also known as “spoofing”.

3. Con artists engage in “pump-and-dump” scams, whereby victims are tricked into buying a large number of shares through a legitimate broker to inflate a stock’s price. One senior investor is reported to have purchased more than $500,000 of a microcap stock while on the phone with the caller, according to FINRA.

4. Cold callers are sometimes simply out to steal a victim’s money, a little at a time. So called “account executives” may also contact individuals who have visited or signed up with a website that promotes low-priced stocks. 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.

Avoiding Boiler Room Scams

FINRA offers consumers a number of tips to help them avoid falling prey to a boiler room-style pitch, including hanging up on the caller or simply not answering the phone at all.

Consumers are also discouraged from making wire transfers or putting investment purchases on a credit card. They should use the internet to check the validity of addresses, phone numbers and other information about the organisation or individual.

Background

FINRA is the largest independent regulator for all securities firms doing business in the United States and is dedicated to investor protection and market integrity through effective and efficient Regulation Regulation Like any other industry with a high net worth, the financial services industry is tightly regulated to help curb illicit behavior and manipulation. Each asset class has its own set of protocols put in place to combat their respective forms of abuse.In the foreign exchange space, regulation is assumed by authorities in multiple jurisdictions, though ultimately lacking a binding international order. Who are the Industry’s Leading Regulators?Regulators such as the UK’s Financial Conduct Authority ( Like any other industry with a high net worth, the financial services industry is tightly regulated to help curb illicit behavior and manipulation. Each asset class has its own set of protocols put in place to combat their respective forms of abuse.In the foreign exchange space, regulation is assumed by authorities in multiple jurisdictions, though ultimately lacking a binding international order. Who are the Industry’s Leading Regulators?Regulators such as the UK’s Financial Conduct Authority ( Read this Term and complementary Compliance Compliance In finance, banking, investing, and insurance compliance refers to following the rules or orders set down by the government regulatory authority, either as providing a service or processing a transaction. Compliance concerning finance would also be a state of being following established guidelines or specifications. This designation can also encompass efforts to ensure that organizations are abiding by both industry regulations and government legislation. Understanding ComplianceCompliance is a In finance, banking, investing, and insurance compliance refers to following the rules or orders set down by the government regulatory authority, either as providing a service or processing a transaction. Compliance concerning finance would also be a state of being following established guidelines or specifications. This designation can also encompass efforts to ensure that organizations are abiding by both industry regulations and government legislation. Understanding ComplianceCompliance is a Read this Term and technology-based services.

FINRA touches virtually every aspect of the securities business from registering and educating all industry participants to examining securities firms, writing rules, enforcing those rules and the federal securities laws, as well as informing and educating the investing public.