Boiler room scams get their name from the high-pressure sales tactics these organisations use to get people to invest their money, often in shady or non-existent investments.
Most commonly, business owners will receive a cold call with details of a great investment opportunity. Often the scammers will start off with a relatively small investment and will pay out small dividends to gain the confidence of the investor.
After that, they’ll offer another investment opportunity that will be dressed up to be more lucrative but requires a larger investment. More often than not, the investor will never see this money again and will be unable to withdraw any of the cash they’ve put into the offers.
Nowadays, many of these operations are run overseas where legislation isn’t as strict as in Australia. The investors will not have the required licenses to run their operations, but they will usually set up fancy websites with convincing material to build trust with investors.
How to spot a boiler room scam
The biggest indicator of a boiler room scam is a high-pressure desire or requirement for you to act quickly. Legitimate investment companies are happy for you to make money at any time, and while they may suggest quick movement from time to time, they won’t harass you to keep investing in one offer.
If your contact is offering you ‘inside information’ or something else that sounds fishy, there’s a good chance something is amiss. They may tell you that a bank or major corporation is going to invest soon, but this is most likely a lie. Ask yourself why a stranger would share this information with you before you make any investment.
Another red flag is that the caller asks for money to be sent to an offshore bank account in a company name, which is usually a different name to their own company name. Fraudsters use foreign based money laundering agents to clean the money in boiler room frauds so it’s difficult to trace the actual offenders involved or their real locations.
And last, but by no means least, if an offer seems too good to be true, it surely is. If you’re given huge promises of profit with little or no risk, there’s something off. A legitimate company will be sure to make you aware of any risks to cover themselves, if nothing else.
What to do if you are contacted by a phone scammer
Although the company will tell you that there’s a time restriction on any investment made, it’s important to do due diligence before investing any money. One of the first steps you should do is check the government’s list of known companies that operate boiler rooms or carry out other types of investment fraud: https://www.moneysmart.gov.au/scams/companies-you-should-not-deal-with
Often, a quick Google search will bring up interesting results. Search the company name to see if there are other reports of scams or frauds. Searching for the key words ‘company name + scam’ could highlight these cases.
Sometimes, people will pretend to be from legitimate companies when they have no affiliation. Try phoning the company’s number on the website to see if you can get through to your contact or not.
Before giving out any money, make sure you speak to a professional for advice. A lawyer or accountant can help keep your feet on the ground and stop you from making a costly mistake.
You should also report the scam to the ACCC and ASIC. If you have fallen for a boiler room scam, speak to a lawyer and/or an international fraud investigation agency to find out if it’s possible to recover your stolen assets.
Read more about boiler room scams
To find out more about how to avoid scams and other types of fraud, download our free ebook: Online Investment Fraud: Recover Your Stolen Assets. You’ll find out about activities affecting Australian companies and how IFW Global helps to recover assets in international cases.