Business Growth Strategies » Tips

Boiler Room Scams: How They Work

Ryan M. Healy — Wed, 27 Jul 2011 17:58:31 +0000

Boiler room scams are on the rise, so I feel it’s important for you to know how this type of scam works.

Step 1: You buy an inexpensive product or accept a “Free plus Shipping” offer from an infomercial or similar marketing medium.

Step 2: Get a call from a boiler room where you are pitched an expensive coaching or mentoring program.

Now comes a decision point. Do you buy what was offered in Step 2 or not? If you don’t, there is no Step 3. But if you do…

Step 3: Lose a whack of money. Could be $2,000. Could be $30,000 or more.

This kind of stuff happens every day in America and in the U.K.

Right now, boiler room scams are on the rise in the U.K. The most insidious scam involves persuading retirees and middle-aged investors to buy non-existent shares that are supposedly going to significantly increase in value in the near future.

Most boiler room scams in the U.S. involve capturing a person’s credit card information and then making unauthorized charges. Usually, there is a mysterious monthly charge that is less than $100. These charges can go undetected for months. Once noticed, it is difficult if not impossible to get the charges stopped without canceling the card.

Other boiler room scams use high-pressure sales tactics to get authorization, and then charge the card one time for a large four-figure or five-figure amount.

The victims of these scams almost never get refunds. A rare few are able to get chargebacks, but are forced to waste inordinate amounts of time and energy in order to do so. The majority never go to the trouble and just take the loss.

In Britain’s latest rash of scams, the marks are asked to wire money to a bank, usually off-shore, in order to buy the non-existent shares being pitched. Of course, once money has been wired to another bank, there is no way to get the money back. Once it’s gone, it’s gone forever.

The Telegraph reports:

DH, a Telegraph reader lost £400,000 to such a scam. He was conned by a company that appeared to be genuine – it had an FSA authorisation number and an HSBC bank account, albeit offshore. He has little hope of recovering a penny. [...] The average amount of money lost is £20,000, but the biggest individual loss to date recorded by the police is £1.2m.

The situation in the U.K. has gotten so bad that banks are now issuing letters to their customers warning them of boiler room fraudsters.

Are You on a “Sucker List”?

Boiler rooms usually work off compiled lists of people with similar demographic and psychographic traits. These lists are affectionately called “sucker lists.”

An easy way to get on a sucker list is to do what I described in Step 1 above: Buy an inexpensive product or accept a “Free plus Shipping” offer from an infomercial or similar marketing medium.

Of course, buying an inexpensive product from an infomercial is no guarantee you’ll be put on a sucker list. But it helps if that product is about a business opportunity or has something to do with making money.

This is because boiler rooms prey on vulnerable people who are desperate to make money. Greed is a common factor among those who get taken.

My Personal Experience with Boiler Rooms

I can say from personal experience that I’ve never had a good experience with a boiler room. I’ve spoken with a few, and even paid for some way-over-priced programs back in my early 20s when I was what they call a “hyper responder.”

In every case, the offer being pitched was a course, method, or opportunity for making money.

The first time, I paid $5,000 for H. Roger Neale’s Fast Flip Real Estate Home Study Course. It was, in my opinion, nowhere near worth that much. I didn’t agree with the methods he taught, so I never used them. A complete waste of money.

The second time, I bought into an MLM opportunity. It was an investment of about $2,000 or so. Again, I realized too late that I disagreed with the marketing tactics being employed. Fortunately, I was able to ship everything back for a partial refund. I think I lost a few hundred dollars on this deal.

The third time, I made the biggest financial mistake of my life: I paid $30,000 for five vending machines. Although a boiler room was involved in the initial steps of the marketing funnel, the sale was commenced in a one-on-one meeting after a live presentation.

I began to wise up after this third episode.

So when I sat down to discuss buying the Denver, Colorado, territory for the Glazer-Kennedy Inner Circle business franchises that were first offered at the 2006 GKIC SuperConference in Chicago, I decided against the opportunity. (I have never regretted that decision.)

Why You’ll Give Thousands of Dollars
to Somebody You Don’t Know

Because of these experiences (and a handful of others where I said “no”), I began to catch on to how they were getting me (and many others) to part with large sums of money.

And while there are multiple persuasion tactics being used (authority, social proof, and urgency chief among them), the single biggest persuasion tactic is the use of consistency.

Humans want to be consistent — and congruent — in their behavior. Marketers know this. So the sales scripts they use rely on building small commitments in the beginning so that it’s difficult for you to say “no” in the end.

If you agree in the beginning, you can’t say “no” later without contradicting yourself and making yourself look bad.

So pride gets the best of most people and they plunk down a bunch of cash for an opportunity or coaching service that is not going to improve their life in any way.

Fraud: An Inside Look

If you have a few minutes, I highly recommend you watch this video. It covers many of the tactics boiler rooms use to manipulate their marks.

Take note of how the manipulation occurs. Jim Vitale, the former boiler room sales person in the video above, explains how it works:

Authority – Authority is established right up front. “Hey, how are you Jim, the first thing I want to do is to grab a pen, I want you to write my name down. (Now I have control. I’m already telling you what to do).” If a person asks too many questions, the authority is reinforced later through the use of what Jim calls a “slap take-away.”

Social Proof – Jim says that after setting an appointment to talk with a prospect, he’ll give the person references. This is the use of social proof. If other people have had success, then you are more likely conclude that you can, too. Unfortunately, many so-called “references” are being paid by the company. In other words, they are fraudulent.

Urgency – The phrase “ground floor opportunity” has urgency built into it. If you don’t get in fast, you might get in too late. Urgency is also built into the take-away. It’s common to mention a limited number of areas or territories, and that other people are “waiting in line” for the opportunity to get one. This is urgency created by scarcity.

It’s not that authority or social proof or urgency are inherently bad. But they can be used to manipulate people into making irrational and harmful decisions. This is why they are tools of the trade in every boiler room’s toolbox.

How to Protect Yourself
from Boiler Room Scams

If you find yourself tempted to buy into an expensive business opportunity or coaching program, please protect yourself by keeping these tips in mind…

Tip #1: Always do your research before making an investment. Search Bing for negative/positive reviews and see what you can dig up.

Tip #2: If it sounds too good to be true, it probably is. Don’t let yourself be manipulated by promises of easy wealth.

Tip #3: If you must use a credit card to pay for the opportunity, then do not proceed. Say no and hang up.

Tip #4: If you must take out a second mortgage to pay for the opportunity, then do not proceed. Say no and hang up.

Tip #5: If the sales person asks for your credit card limit or how much credit you have available to use, then do not proceed. Say no and hang up.

Tip #6: Do the math! Figure out how much you could realistically make in the next 3 months. Then cut that number in half. Then halve it again. Does your investment still make sense?

Tip #7: Plan for the worst case scenario. If you none of the income claims are true, and you never make a penny, will you be able to recoup part of your investment? Can you resell whatever it is you’re buying? If so, what is the going rate on eBay right now?

Tip #8: Talk to trusted friends and family members about the opportunity or coaching program you’re considering. Get their honest feedback — and take it seriously. The people who love you most are interested in protecting you from making a bad decision.

Tip #9: Last but not least, never make a decision the same day or even the same week. Give yourself at least two weeks to consider any big investment. After you’ve “cooled off,” you’ll be more rational about the decision.

These tips, combined with the information above, should provide you with a good defense if you ever find yourself on the receiving end of a boiler room scam phone call.

Oh, and one last thing…

Do you have a story or experience about getting scammed by a boiler room? Please share by leaving a comment below.

-Ryan M. HealySimilar Posts:

Attention Mac Users – I Need Your Help

Ryan M. Healy — Thu, 16 Sep 2010 20:19:17 +0000

Yesterday, I finally “retired” my five-and-a-half-year-old Dell laptop and bought an Apple iMac to replace it.

So far, I love it. Feels light years beyond my old PC set-up.

But right now I’m focused on two important things:

Transferring important files over to the new iMac.
And… Learning how to most efficiently use my iMac.

With that in mind, I’d like to solicit your help.

Please leave a comment sharing your #1 tip, tool, or shortcut for your Mac computer.

It could be a little-known function for doing something cool.
It could be a Mac software program that you just can’t live without.
Or it could be any other tip or resource you feel I (and other Mac converts) should know about.

I’m particularly interested in any advice you have in how best to use a Mac in a home-based business.

What’s the best HTML editor for a Mac?
What’s the best text editor? (I used Textpad on my PC.)
What’s the best screen capture video software?
What’s the best FTP program?
What’s the best way to do screen captures?
Do you see how many questions I have? :-)

Not only will I read every comment, I’ll also take all the best tips and publish them next week in a brand new blog post, with attribution.

So get to it! Share your best Mac advice by leaving a comment below.

UPDATE: I’ve finally tabulated all the results and published them here… Best Mac Tips, Software & Shortcuts for Internet Marketers.

-Ryan M. Healy

P.S. Feel free to leave a link in your comment if needed. But please know in advance that all comments with links are held for moderation. So it may take me a few minutes — or a few hours — to publish your comment depending on when you leave it. Thanks!Similar Posts:

Simple Tips for Getting More Traffic

Ryan M. Healy — Tue, 25 Nov 2008 14:50:37 +0000

Since I’ve been marketing on the Internet for more than six years now, both as an employee and a freelance copywriter, I’ve learned quite a few things about generating traffic.

In fact, TRAFFIC was one of the first subjects I ever dove head-first into — even before copywriting.

This is not to say I’m a traffic expert; far from it. But I have picked up a few simple tips for getting more traffic, starting today if you want.

Tip #1: Read blogs that are similar to yours. If you read a blog post, leave a relevant comment. Make sure you fill in the Comment form with your web site URL. Every time you do this, you are creating a small trickle of traffic back to your site. (Time Investment: ~2 minutes per comment.)

Tip #2: The faster you leave a comment after a blog post has been published, the better. In general, those who comment first get more traffic than those who comment last. If you are first to leave a comment on a new article on a popular blog… and the blog owner pings his list… you will then benefit from the spike in traffic to that particular blog post. (Time Investment: Zero additional minutes; just be alert.)

Tip #3: If you want to find “Do Follow” blogs so you get more “SEO credit” from your comments… or if you want to find blogs that use the “Comment Luv” plug-in for WordPress… go download Comment Kahuna and start using it. Comment Kahuna is a free software program. It finds blogs that meet your criteria and allows you to post comments very quickly. (Time Investment: ~10 minutes to download and install; ~15 minutes to learn how to use; ~10 minutes to use once a week.)

Tip #4: While you’re at it, if you really like the blog post that you just left a comment on, submit it to StumbleUpon. If the post proves to be popular with other Stumblers, you will get more traffic to your site than you would otherwise. (Time Investment: ~5 seconds per blog post Stumbled.)

Tip #5: Get an account at Gravatar and upload your mug. Since most people don’t use Gravatar and are “faceless” so to speak, you will automatically get more attention (and traffic!) anytime you leave a comment on a blog where Gravatars are displayed. (Time Investment: 5 minutes total, then you’re done.)

Tip #6: Every week, submit your best blog post to a Blog Carnival. If you’ve never done this before, create a free account, search for Carnivals related to the subject of the articles you write, and save them to your Favorites list. Once a week, go to your Favorites and submit your best blog post to one or more carnivals. (Time Investment: ~5 minutes per week.)

Tip #7: Get a free account at Twitter and start “tweeting” once or twice a day. Simply by having a profile, you will naturally attract followers. Example: I created my Twitter profile about two months ago and I now have 340 followers. Use www.TweetLater.com (free) to grab your blog’s RSS feed and automatically “tweet” every time you publish a new post. (Time Investment: ~10 minutes to create your profile; ~5 minutes a day to tweet once or twice.)

Tip #8: Last but not least, get a free account at My Blog Log. Literally thousands of blogs display the My Blog Log reader widget in their sidebar. (You can see mine in the right-hand column.) When you visit a blog that uses this widget, your picture will automatically be displayed at the top left of the list. Visitors to the blog can then click on your face to learn more about you and the blog(s) you write. (Time Investment: ~5 minutes to set up your profile; Extra Credit: ~5 minutes to install the widget on your own blog.)

All of these traffic tips are simple, fast, and easy to implement. Not to mention, they’re all FREE.

If you implement all of them, and you consistently do what I suggest every week, you will create a stream of predictable traffic that grows steadily with time… guaranteed.