Securities fraud, also known as stock fraud or investment fraud, occurs when a party involved in buying, selling and trading a company’s stocks provides misleading information to the public or buyers. The false statements affect buyers involved in the trade market when they are making final financial decisions.
Below are five of the most common types of securities fraud.
1. High yield investment fraud
This type of fraud is committed by unlicensed individuals who run unregistered investments that promise high rates of return with minimum or no risk. The perpetrators usually create websites through which they contact the victims. The common assets included in high yield investment fraud are real estate, securities, commodities and precious metals.
2. Insider trading
This fraud is usually committed when an individual with access to a company’s confidential information uses this information when buying or selling stock. The confidential information helps them when making final financial decisions. For example, an executive who sells his or her stock after discovering that their company will soon become bankrupt may be found guilty of insider trading.
3. Ponzi and pyramid schemes
This type of fraud occurs when individuals collect money from individuals with a promise to pay them high rates of return that are equivalent to the ones being paid to earlier investors. In reality, these schemes can only pay consistent returns as the investors are the only source of funding.
4. Third-party misrepresentation
This type of fraud occurs when a third party provides false information about a company to encourage more people to buy stock. The price of the stock is more likely to rise after most people have bought, and this is when the perpetrator sells their shares for a profit.
5. Advance fee schemes
This type of fraud occurs when an individual pays money to an investor who expects to receive something of higher value in return but receives little or nothing instead. In addition, the perpetrator might also request the victims to contribute funds to pay taxes or processing fees.
What are the early signs of securities fraud?
The following signs may indicate that a scheme is likely to be a fraud, and one needs to be cautious before joining.
- If the scheme offers enticing offers, that sounds too good to be true.
- When the investment offer is unsolicited
- If the investor requests personal information such as credit card information
If you believe you’ve been involved in securities fraud, contact an attorney.
