Boiler room fraud occurs when investors are intentionally misled into a scam investment opportunity.
The definition ‘boiler room’ is derived from the place (room) where trained salesmen in call centers are at work and from where potential individual investors are contacted by phone or e-mail out of the blue. These individual investors are put under pressure into making a rushed decision and are purposely misled so that they invest in shares, financial values and commodities at prices far above their actual value.
The frauds are well organised and convincing, with constantly evolving modus operandi. The types of shares promoted tend to be those of unlisted companies at a pre-Initial Public Offering (pre-IPO) stage, high-risk shares or shares in newly-listed start-up companies. When sold to investors, the shares are, at best, significantly overpriced and, at worst, worthless or untradeable.
Boiler rooms organizations are increasingly employing countermeasures, including relocating frequently and using sophisticated technologies, to conceal their communications and the locations from which they operate.
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