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Concept
Boiler room (business)
Summary
In business, the term boiler room refers to an outbound call center selling questionable investments by telephone. It usually refers to a room where salespeople work using unfair, dishonest sales tactics, sometimes selling penny stocks or private placements or committing outright stock fraud. A common boiler room tactic is the use of falsified and bolstered information in combination with verified company-released information. The term is pejorative: it is often used to imply high-pressure sales tactics and, sometimes, poor working conditions.
The classic image of a boiler room is that it has an undisclosed relationship with the companies it promotes, or an undisclosed profit motive for promoting those companies.
Once the insider investors are in place, a boiler room promotes (by telephone calls to brokerage clients or spam email) these thinly traded stocks (i.e. stocks that are not purchased or sold very often) where there is no actual market. The brokers of the boiler room actually "create" a market by attracting buyers, whose demand for the stock drives up the price; this gives the owners of the company enough volume to sell their shares at a profit, a form of pump and dump operation where the original investors profit at the expense of the investors taken in by the boiler room operation.
In the 20th century, the U.S. Securities and Exchange Commission described boiler rooms as follows:
The brokers sat "cheek by jowl" in a room the size of a basketball court. All of their desks were lined up side by side in rows. The firm held mandatory sales meetings every morning at 8:30 a.m. at which time sales techniques were demonstrated and scripts for the firm's "house stock" ... were distributed. Brokers were expected to follow the scripts and only give customers the information they contained.
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.
Official source
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