What is investment fraud?
If someone is seeking a high rate of return for an investment, he or she would have to put money in relatively high-risk investments. For instance, when an investor puts money into many stocks, there is no guarantee they will make any money and may end up losing money over time. The risk of losing money increases with the rate of potential return. Losing money because of investment in high-risk properties is not caused by fraud. It is caused by risk-taking. However, most investment fraud takes place within this range of high-risk investment that promises high rates of return. Greed and the temptation of getting rich fast have a lot to do with the draw of investment fraud.
A rudimentary form of investment fraud is the “hot tip.” If the advice an investor receives is based on confidential information that comes from inside the company itself it is “insider information.” The person who passed the tip is guilty of a crime under “insider information” laws and the investor who acts on the information is also criminally liable. More often than not, the tips investors receive from fraudsters is not based on insider information, but based on self-serving speculation or outright falsehood. Victims of fraud are most often victims of persuasion that triggers unrealistic expectations.
Investor fraud need not be about the selling of non-existent products or about theft. It sometimes takes the form of high-pressure sales of high-risk investments. Scammers will try to get investors’ money immediately without providing in-depth background or giving needed warnings. They may present investors with fraudulent “limited time offers.” They will not give the investor time to research the investment. Often the sellers are people who are not legally registered with government securities regulators.
Investment fraud may take the form of what is presented as “risk-free and high yield investments.” They may take the form of pyramid schemes or Ponzi schemes which will appear to yield dividends at first but will eventually collapse because their structures are not tenable. They can take the form of quick investment called “promissory notes,” where the investor is told he or she is loaning money to a company at a high rate of interest. The interest payments do not materialize. Often fraudulent investments are sold over online sites. They can also be sold to particular religious or ethnic communities by claiming special benefits.
Investment Fraud Attracts High-Risk Investors.
American lose tens of billions of dollars to investment fraud every year. Who is most likely to be a victim of investor fraud? From the nature of investment fraud itself, the kinds of people likely to be victims can be guessed. People with savings or perceived financial means but with poor ability to make critical judgment are often victims. Often seniors faced with the need to invest their own resources to generate income replacing decreased pension and other income sources often fall victim to the dales high-yield promises and pressure sales tactics of fraudsters.
The study found that investment fraud victims are often older, financially literate males who have higher than average incomes and more formal education than others. The victims of fraud prefer unregulated investments (not like investment funds or investments supervised by professionals). They are willing to take risks to get high-yields in their investments. Because they are risk-prone they are more willing to take chances. Investment salespeople often find these risk-prone people and target them on phone lists and email lists. They tend to make more investment decisions than others.
Aiman-Smith & Marcy are ready to discuss your case involving forms of investment fraud without delay before legal statutes of limitations expire. Please contact us to learn more.