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I took a phone call last week from someone who was irate about some posts on our Financial Scams discussion board which suggested his company was a "boiler room." I'm not going to name the company -- I don't want to make libel lawyers any richer than they already are -- but I do think that all Fools should be aware of boiler rooms and similar stock market scams. My definition of a boiler room is an offshore company where dealers cold call British investors and pressure them into buying poor shares at inflated prices. If you're suckered by one of these guys, you could quickly find yourself sitting on a large loss. And if you do lose money, you won't be able to get any cash from UK compensation schemes. That's because these offshore firms aren't regulated by the Financial Services Authority (FSA). The boiler rooms use various techniques to get hold of names to call. They can follow up initial market research calls or call up investors on shareholder registers of small companies. Dealers can then offer free research on a punter's favourite share, and a relationship can be built from there. Or you might be offered free research via junk mail. If you send a reply card back with a tick in a particular box, the dealing room can then claim it's making a legitimate phone call. Also beware of some UK-based firms, often called "bucket shops." These companies are regulated by the FSA, and some of them will be known to many Fools. Bucket shops often buy substantial slugs of shares in struggling companies and then sell them on to their customers. I stupidly signed up with one of these operators a couple of years ago. Once all the forms had been signed and sealed, I was called by one of the company's dealers and offered shares in Screen FX (LSE: SFX). When I said I wanted time to think about it, the dealer made his displeasure very clear. It wasn't pleasant, and I cut off my link to the company shortly afterwards. Needless to say, Screen FX has been a dreadful stock market performer over the last two years. If you'd like to know more about stock market scams, take a look at the boiler room FAQ on our discussion boards. My essential message is this: don't trust anyone who phones you offering cheap shares, and you should also be wary of offers of free research in your favourite company. If something sounds too good to be true, it probably is.... More: FSA Warning | FSA Rulebook | FSA's list of boiler rooms
