What is boiler room fraud?

Legal Floris LLC

The combination of inflation, low interest rates and the increasing costs and charges of traditional banking, trigger all types of investors to search for alternatives. This quest for new insights is advanced by swift access to information and financial technology, and exorbitant returns on investment that average investors generate. Although downside risk to these investments is corresponding, an upward trend and perfect wave results in almost unbelievable above market returns.

In the old days, boiler room fraud was and telemarketing are interconnected. In the old days, telemarketers used cold calling techniques to attract random people into high risk, exotic and sometimes even non-existent investments. The excessive growth of information available on the internet allowed the financial industry to respond. From trustworthy regulated financial institutions to high pressure salesmen, and the unregulated scam artist all use the internet to promote their services and get the attention of potential investors. As such, interested people from all around the world are send to commercial leadgenerators for advisors to contact potential customers.

Even though the majority of financial institutions provide legitimate services, there also is a group of people who exclusively trade for their own and personal benefit. They either sell non-existing investments, worthless penny stocks in underperforming companies, contracts for difference, and others all with exorbitant leverage over the principal investment. Sometimes the investment turns out to be a pump and dump scheme where the financial advisor sells stable and constant shares with little trading volume to a group of unaware buyers for his own profit.

Financial leadgenerators appear as they operate locally as an affiliate for an international licensed trading firm. The license of the platform is often provided by a regulator or securities and exchange commission in a country with lax rules. By default, arrangements are concluded, and disputes settled by the laws of the country of the platform, unless a local court where the investor decides differently.

Boiler room fraud is sophisticated investment fraud that is often difficult to prove. Transaction are structured in a way that makes it difficult for investors to gain a positive return. The platform does everything it can to prevent the investor to cash in on his profits. This is because trading via boiler rooms has similarities to playing in the casino; in the end the house always wins.

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