At some point in time you might be in possession of additional capital you might want to invest, ensuring wealthy returns in future from the investment. On many occasions world markets may prove to be ideal for investment purposes and this is the area where boiler room fraudsters strive to defraud unsuspecting investors.

How these Scams are Committed

Boiler room operators are unscrupulous sales people who operate from unknown locations making random calls to potential investors and attempting to pressure them into purchasing worthless investments. Offenders are usually equipped with sophisticated sales scripts and high-pressure sales tactics, which are used to convince their victims into purchasing worthless investments.

Boiler room operators often attempt to sell:

• Penny Stocks
• Foreign Exchange Investments
• Microcap Stocks
• High Risk Initial Public Offerings
• House Stocks

Penny and Microcap Stocks

In the United States Microcap Stocks are usually considered to apply to companies with low capitalization, which refers to the total value of the company’s stock. Generally Microcap Stocks trade in the “over-the-counter” market and are quoted on such systems, such as the Over the Counter Bulletin Board or “Pink Sheets.”

In many other countries around the world, Microcap Stocks are referred to as Penny Stocks which means stocks whose stock price is less than a certain amount, usually 1 US Dollar.

Foreign Exchange Investments

Generally fraudsters attempt to solicit money for investments in exchange instruments traded in foreign markets when such markets experience periods of financial crisis. The offenders of these scams attempt to convince its victims that certain foreign exchange instruments are good investments, which are currently undervalued due to the crisis which presents a tremendous buying opportunity and massive growth in future. These investments are generally non-existent.

Risky Initial Public Offerings

The majority of companies that are initially becoming publicly traded companies usually do an initial public offering to raise money. While many of such offerings are potential worthwhile investments, many of them are indeed risky ventures. The boiler room scammer will purposely downplay or neglect to inform the victim of the negative aspects so to ensure the victim parts with his/her funds in investing in these offerings.

House Stocks

House Stocks refers to stocks that an investment firm has purchased themselves to resell at a higher price ensuring a good profit margin. Consequently, brokers of these types of stocks will try to manipulate the market by buying stock of thinly traded companies, ensuring the values of these stocks are increased. They will pump these stock prices up to higher prices and then sell them to their clients at a profit. Once buying these stocks, victims will later realize that there are no buyers for these stocks, which subsequently results in the prices tumbling.

Protecting Yourself

If you receive a telephone call from a suspected boiler room broker who offers you invest potential in one of the various instruments, be careful of the following list of descriptions which are typical hallmarks of a fraudulent boiler room operator:

• Offenders often make use of high-pressure sales tactics. Offenders will attempt to sell the investment on the spot and often not allow the victim to make an informed decision.
• Offenders often make unbelievable promises of growth in investments at little to no risk to the victim.
• Offenders generally give very little information or documentary proof of investment opportunities.
• In almost all these scams offenders will inform the victim that they received information on investment opportunities from Insiders, which are not the truth.
• The majority of offenders will often make use of a systematic approach, whereby the victim will be contacted. They will attempt to build up trust on the first call, without making mention of stocks on this call. They will attempt to obtain permission to call the victim back.

Here are some tips that can help you avoid being a victim of a boiler room scam:

• Never cave in to high-pressure sales tactics. Do not make an immediate decision. Get written information first about the firm, the sales person, and the investment discussed.
• Obtain a second opinion from a professional financial advisor.
• The golden rule about investing: Never invest in anything you do not understand.
• Never encourage a caller to call you back.
• Don’t share any personal information with the caller over a phone. Demand a physical meeting.
• Always refrain from investing in risky companies. There are many better investment opportunities on financial markets.

By: Kaung | KMKBlog.com