What is a Boiler Room

A boiler room is place or operation where high-pressure salespeople use banks of telephones to call lists of potential investors (known as a "sucker lists") in order to peddle speculative, even fraudulent, securities. A "boiler room" is so called due to high-pressure selling.


A broker using boiler-room tactics gives customers only positive information about the stock and discourages them from doing any outside research. Boiler-room salespeople typically use catchphrases like "it's a sure thing" or "opportunities like this happen once in a lifetime."

Boiler-room methods, if not illegal, clearly violate the National Association of Securities Dealers' (NASD) rules of fair practice. The North American Securities Administrators Association estimates that investors collectively lose $10 billion a year – roughly $1 million an hour – to investment fraud promoted over the telephone.

How Boiler Rooms Operate

According the Securities and Exchange Commission, the people involved in a boiler-room scheme reach out to investors through cold calls, meaning they have had no prior contact with the investors. This tactic positions the prospect to have no frame of reference or history to measure the caller’s claims against. While this means the prospect has no reason to trust the caller, it also means that they have no background information to disprove their claims.

Part of the pressure sales approach may include making assertions about the investment opportunity the target cannot verify on their own. The salesperson might insist on immediate payment by the prospect. They may also take a hostile approach, threatening the prospect to act in order to swindle them. Promises of high returns and no risk might also be used to pressure prospects to invest.

Boiler-room tactics are sometimes used to convince investors to overspend on the purchase of securities that are of lower value than claimed. The securities may, in fact, be worthless or nonexistent, and the funds that are raised are solely for the enrichment of the individuals behind the operation. A variety of fraudulent scams may be run through boiler-room schemes. This can include binary options fraud, advance fee fraud, and microcap fraud.

While the term boiler room refers to an early practice of running such operations in the basement or boiler room of a building, these schemes can be maintained at a variety of locations such as offices or private homes. Prospects might also be solicited through other means than phone calls. Electronic messaging such as email, text messages, and social media can be used to initiate contact with the prospect.