Boiler Room

What is a boiler room?

An enterprise that often is operated out of inexpensive, low-rent quarters (hence the term "boiler room"), that uses high pressure sales tactics (generally over the telephone), and possibly false or misleading information to solicit generally unsophisticated investors. (Source: CFTC)

Dishonest brokers set up "boiler rooms" where a small army of high-pressure salespeople use banks of telephones to make cold calls to as many potential investors as possible. These strangers hound investors to buy "house stocks"—stocks that the firm buys or sells as a market maker or has in its inventory. In the context of the forex market, a boiler room may be an operation selling fraudulent or non-existent currency trading products. (Source: SEC)

The term boiler room typically refers to a room where telemarketers work, often selling stocks, and using unfair, dishonest sales tactics, sometimes selling fraudulent stocks. The term carries a negative connotation, and is often used to imply high-pressure sales tactics and sometimes, poor working conditions.

A boiler room usually has an undisclosed relationship with the company being promoted or undisclosed profit from the sale of the house stock they are promoting.

A boiler room promotes (via telephone calls to brokerage clients or spam email) thinly traded stocks. The boiler room usually holds a large position in the stock and plans to dump it on brokerage clients at a high price.

The boiler room usually has close ties to or the same owners of the company whose stock is being promoted.

Some traits of a boiler room include presenting only good news about the stock to be sold, and discouraging outside research by customers or brokers working there.

The term is likely to have originated from the cheap, hastily arranged office space used by such firms, often just a few desks in a the basement or utility room of an existing office building. The term is a fitting analogy due to the secretive nature of these firms, the connections with the company they are promoting and the high-pressure nature of their activities. (Source: Wikipedia)