A boiler room was a sales floor. Rows of young brokers phoned strangers all day, read from a script, and sold them small, thinly traded stocks that their own firm controlled. The stock went up because the firm's phones made it go up, and it stayed up only as long as nobody was allowed to sell. Here is how the rooms worked, using what regulators wrote down at the time, and how they were shut.
The pitch
The SEC's description, from 1998, is short: "a small army" of salespeople cold-call possible investors using scripts, to get them to buy "house stocks", meaning stocks the firm makes a market in or holds a lot of. What the investor hears is, in the SEC's words, "at best exaggerated and at worst completely fabricated" [1].
Congress's auditors had described the same pattern five years earlier: a company with few assets and no real business, a market maker pushing its stock with "high-pressure, boiler-room sales tactics", salespeople claiming it would soon double, the shares passed between investors at rising prices, and at the end a market maker who would not take sell orders, "leaving the final investors holding worthless stock" [2].
Inside one room
The best-known room was Stratton Oakmont, a brokerage on Long Island. In a 1996 ruling on one of its salesmen, who worked there from 1989 to 1991, the SEC set down what the floor was like. Brokers sat "cheek by jowl" in a room the size of a basketball court. There was a mandatory sales meeting at 8:30 every morning and a second at the end of the day, where each broker reported their sales. Brokers who did not stay on the phone were fired. By one count in the record the firm had 80 brokers and 120 cold callers [3].
The scripts for the house stocks were handed out at those meetings, and brokers "were expected to follow the scripts and only give customers the information they contained." The salesman in the case told customers that some house stocks would more than double in a short time [3].
Nobody sells
The part that made it work was the exit, or the lack of one. The firm made the market in its house stocks [3], so a wave of customers selling would have pushed the price down. The SEC found that the salesman talked customers out of selling and never told them the reason: the firm wanted "to avoid negative price pressure on house stocks" [3].
The insiders, meanwhile, were the ones who could sell. In the SEC's account of a pump and dump, the promoters, insiders and brokers hold large amounts of the stock, push the price up, and sell into the rise [1].
The rules written against it
By the late 1980s penny-stock fraud was costing investors as much as $2 billion a year, by the state securities regulators' estimate [2]. The answer came in pieces. From January 1990 a broker recommending a low-priced stock to someone who was not already a customer had to judge whether it suited them, give them that judgment in writing, get it signed back, and get a written agreement naming the stock and the number of shares [2].
The Penny Stock Reform Act followed in October 1990 [4]. Under it, and the SEC rules that mostly took effect on 1 January 1993, a broker had to hand over a statement of the risks before a sale, show the real bid and ask prices and what the broker was being paid, and send monthly statements [2]. Complaints to the SEC about penny-stock dealers fell from 3,863 in 1989 to 822 in 1991, though the SEC put that down to enforcement, publicity and a slower market as well as the rules [2].
How it ended
In December 1996 the brokers' own regulator, the NASD, found that Stratton Oakmont had charged fraudulent and excessive prices for the warrants of a small company it was selling, and expelled the firm. The SEC refused to put the expulsion on hold and gave the firm five business days, only to carry out customers' own orders to sell [5].
The rooms outlived it. In June 2000 federal prosecutors in New York charged 120 people in what they called "the largest securities fraud takedown in history": crews of corrupt brokers, sometimes whole branches, paid to push small stocks from boiler rooms, often to older investors, for a scheme tied to organised crime. It reached the stock of 19 public companies, and prosecutors put investors' losses above $50 million [6].
The game on top
A boiler room had everything a pump needs except a reason: a story to tell, people paid to tell it, and a market that only went one way because the exit was shut. Synthetic Demand is a satire of exactly that. You are the CEO of an invented company with one job: make the stock go up before you sell. The markets you can be dealt come from real years of market history; the 1990s rooms aren't among them yet.
Every decision you make is graded A to F. Here, nobody stops you selling. The hard part is choosing when.