Problems with Boiler Room Operators- Part 2
Being a broker making cold calls to potential investors is not a violation of laws. Some boiler room operators, however, run afoul of the security laws and regulations by engaging in abusive selling practices or by not being properly registered. Here is a list of some of the problems encountered with some boiler room operators. Some boiler room operators:
- make unauthorized trades in the names of the investors. Once the investor discovers what the boiler operator did, the boiler room operator tries to convince the investor to hold on to the stock.
- evade broker-dealer registration requirements. All stockbrokers and the firms that employ them are required to register in the state or province in which they do business. Once the firms are registered, the authorities can monitor the activities of the firms to ensure compliance with laws designed to protect investors.
- engage in abusive cold calling practices. Boiler Room operators rely on high-pressure, scripted telephone "cold calling" practices designed to pressure the investor into making an investment. The investor is not given time to think about the investment but is made to feel that he has to invest.
Some boiler room operators engage in sales practice abuses. These include:
- lying about their firms' reputation and expertise.
- falsifying records especially relating to unauthorized trades.
- lying about the risks of investments that they are promoting.
- failing to tell the client that they were underwriting the stock.
- failing to tell the client that the stocks were house stocks.
- pushing stocks that they know are worthless or inconsistent with the investors' financial objectives.
- guaranteeing profits or making unsupported predictions of price.
- failing to execute sell orders. The operator doesn't want to create downward pressure on stock price.
- pressuring investors to make quick on the spot decisions.
- lying about investments entirely.
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