Boiler room (business)

In business, the term boiler room refers to an outbound call center selling questionable investments by telephone. It typically refers to a room where salesmen work using unfair, dishonest sales tactics, sometimes selling , private placements or committing outright . The term carries a negative connotation, and 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 (via telephone calls to brokerage clients or spam email) these thinly traded stocks 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 "" . . . 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.

The term is likely to have originated from the cheap, hastily arranged office space used by such firms, often just a few desks in the basement or utility room of an existing office building, with the "heat" and "pressure" of close quarters and fast-paced sales tactics analogous to the conditions in the boiler and, in the former case, its surrounding room.

In the early 1970s (and possibly earlier), boiler room was a term used by political parties for a room with many telephones used to call prospective voters.

In the late 1960s to the 1980s, boiler rooms sold municipal bonds to unsophisticated investors. These boiler rooms were located primarily in the southeastern United States, most notably Memphis, Tennessee and later Little Rock, Arkansas. The operators got the nickname "Bond Daddies." The operators would sell the bonds at inflated prices, substitute different bonds, mislead investors about the risks, or fail to deliver the bonds to the investor.

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