InvestRight

What is a boiler room scheme?

People working in boiler rooms cold call potential investors throughout the day, attempting to pressure them into buying the shares of the company they are promoting. Boiler room operators often set up outside of the jurisdiction they are doing ‘business’ in to avoid detection by local securities regulators and enforcement agencies.

How does it work?

This scheme starts with an unsolicited phone call. Once the caller has you on the phone, they will try to persuade you to invest in the company they are promoting. In many cases, the company is private and is doing business in an industry that is in the news—for example, gold mining.

The caller will often tell you the company is just about to go public through an initial public offering (IPO). They’ll say your investment will give you common shares that will be worth much more than your purchase price. The initial investment may not be that much, often as little as $500.

Promoters, or their agents, will advise you to wire the money to a bank account, and they promise to send you stock certificates that show you hold shares in the company. Once you invest, you will probably be put on a list that is traded or sold to other boiler room or recovery room operations.

In the end, you may discover that the investment and company does not exist. You will likely never see your money again.

What is a recovery room scheme and how does it work?

In a recovery room, or 're-up' scheme, victims are offered inflated prices for shares they purchased in a previous boiler room scheme. Once an investor agrees to sell their shares, a contract is drawn up and they are instructed to wire a sum of money to an offshore bank account. The perpetrators withdraw the money, and the investor loses money again.

For an example of a recovery room scheme, see our Investor Alert, Manitoba Securities Commission and BC Securities Commission uncover ‘re-victimization’ scheme.

Watch out for one or more of these common characteristics:

• Aggressive sales techniques are used to try to get you to buy the investment immediately 
• Once they think you’re interested, the caller may hand the phone over to a ‘closer’, someone whose job it is to complete the sale 
• Sellers may send you information about the investment or direct you to a website to find out more—both will probably contain vague, promotional language and very little real disclosure about the investment 
• Sellers often make predictions, promising unrealistic returns or that the company’s shares will 'go through the roof' 
• You may get repeat phone calls about investing in stocks, bonds, etc.
• Investors who have been defrauded have been called 20-30 times before they finally give in

Research before you invest

Check out Fraud warning signs to familiarize yourself with the language and techniques found in almost every investment scheme. There are also videos of people who talk about how they had their savings taken by a fraud artist.

Visit Avoid investment fraud to learn about techniques and tools you can use to protect yourself against fraudulent investment schemes and their promoters.

Report it and warn others

If you have been approached or know of an investment that fits the description above, contact your provincial securities regulator immediately.

In BC, contact BCSC Inquiries. You can also anonymously report suspicious activity through InvestRight’s Report a scam webpage.

Residents from other Canadian provinces can find contact information for their provincial securities regulator at
www.securities-administrators.ca.

If you know a person who has put money into, or is considering contributing, to an investment like the one described above, give or send them this information, and encourage them to do more research.