Movies like Wolf of Wall Street, Wall Street, and Boiler Room highlight the extremes of unscrupulous, if not outright illegal, sales tactics used by shady brokers. But in reality, many brokers — both inside boiler rooms and out — still employ these kinds of tactics to sell dubious or inappropriate 澳洲幸运5官方开奖结果体彩网:securities to unwitting buyers.

The legality of such sales swindling is a matter of interpretation and may vary between states based on their securities laws. In many cases, these tactics may violate the 澳洲幸运5官方𒅌开奖结果体彩网:Securities and Exchange Commission's 澳洲幸运5官方开奖结果体彩网:Rule 10b5-1 and 10b5-2, which covers the employment of manipulative and deceptive practices to sell securities. The rules prohibit employing any device, scheme or artifice to defraud; making any untrue statement of a material fact or omitting a material fact, or engaging in deceitful behavior.

Here is a handful of bad sales tactics used by brokers that may be illegal under federal or state laws, or at least prompt 澳洲幸运5官方🐬开奖结果体彩网:Financial Industry Regulatory Authority (FINRA) violations.

Pushing to Buy Blindly

Many classic boiler room operations focus on long-distance 澳洲幸运5官方开奖结果体彩网:cold-calling to make sales, with the brokers pushing hard to sell in a single phone call. When doing so, brokers often neglect to provide the would-be client with sufficient information to properly make an investment decision. These omissions are especially deceitful when selling stocks of obscure companies with limited or no operating history without disclosing their lack of revenue or operations.

The omission of material facts when selling securities is a clear violation of Rule 10b-5.

Inflating Past Performance

Brokers may make misleading claims about their past track record to gain a would-be client’s conf🧔idence in their investing abilitieꦜs. For instance, a broker may say that they recently sold stocks for triple-digit gains in just weeks when, in reality, they haven’t sold the shares in question. These track records can be difficult to verify objectively, which makes the lies especially insidious when trying to close customers over the phone.

The untrue statement of a material fact when selling securities also violates Rule 10b-5.

Ignoring Client Sustainability

FINRA Rule 2111 requires that brokers have a “reasonable basis to believe that a recommended transaction or investment strategy is suitable for a customer.” Of course, brokers who are cold-calling new potential clients and pitching one-size-fits-all security haven’t conducted 澳洲幸运5官方开奖结果体彩网:due diligence on the customer or considered the澳洲幸运5官方开奖结果体彩网: suitability of the investment for the customer. For instance, a 澳洲幸运5官方开奖结果体彩网:micro-cap stock being sold in a cold-call lacks a reasonable basis.

The ignorance of suitability may nꦅot violate a specific part of Rule 10b-5, but it does violate FINRA’s rules and could lead to penalties for the broker.

Using Manipulative Talk

Brokers may use a variety of different manipulative sales techniques designed to talk someone into buying security. For example, the movie Wolf of Wall Street 🌠highlights an instance where a sales script played down a would-be client’s desire to ask a spouse before purchasing by saying, “I’m sure you didn’t get to where you are today by consulting with your wife on everyday decisions.” That manipulates a customer by playing to their ego.

These manipulative sales techniques may violate Rule 10b-5’s manipulative practices clause.

Making Outrageous Promises

Brokers may pitch an investment as a guarantee or certainty, when in reality there is no such thing, particularly with risky securities. For example, a broker may portray a merger rumor as a certainty that’s confirmed with “澳洲幸运5官方开奖结果体彩网:insider information,” which could lead to “multi-bagger" returns for the would-be client over the coming weeks𝕴. Of course, the stock would already be tradin𒉰g much higher if a merger had been made public or even strongly suspected.

These promises may violate Rule 10b-5’s guidelines covering deceitful behaviors.

The Bottom Line

The movies highlight extreme cases, but smooth-talking boiler room operators are out there. By being aware of their manipulative tactics and high-pressure tricks, 澳洲幸运5官方开奖结果体彩网:individual investors can avoid losin♔g money to these unscrupulous types — or any investment professional who has only thei꧂r own best interests at heart.