Types of Securities Fraud Consumers Should Recognize | Aiman-Smith & Marcy
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Types of Securities Fraud Consumers Should Recognize

Usually, when consumers think of securities fraud, they imagine someone that provides misleading information about a company and the valuation of its stock. Investors outside of the trading inner-circle begin making decisions and taking actions based upon corporate misconduct. It’s as bad as it sounds.

However, securities fraud is not just limited to lies regarding stocks. It can present itself as an investment opportunity, major promise, or any other misapprehension that can unknowingly lead an investor to financial doom and gloom.

Keeping yourself informed about securities fraud is the very best defense against becoming its next victim. When your cash is all gone, you cannot get it back. Safeguard yourself by recognizing these common types of fraud listed below.

Advance Fee Schemes

The goal of this scheme is to take money from you up-front while simultaneously promising a later reward or lump sum compensation. You may be asked to make a series of advance payments for a product or service that never seems to pan out.

For example, some advance schemes involve offering the victim an interest-free loan from an offshore bank if you pay an application fee in advance. Despite every effort and guarantee, the “banker” is perpetually unable to make good on his or her promises. Any cash paid out becomes the scammer’s intended source of revenue.

Internet Fraud

Internet fraud is the act of using web services or applications to defraud victims or to otherwise gain from their misfortune. Internet criminals steal billions of dollars every year from their victims and this number only grows. Typical circumstances of Internet fraud consist of:

  • corporate fraud;
  • credit card fraud;
  • web auction fraud;
  • financial investment plans;
  • Nigerian letter fraud scammers; and
  • non-delivery of product.

Insider Trading

As discussed in the beginning of this article, the most notorious kind of insider trading is the prohibited use of non-public information regarding a company’s earnings. It is essential to keep in mind that this type of fraud can be committed by virtually anyone, including, but not limited to: business executives, family, friends, or an incidental conversation in public.

For example, the CEO of a publicly-traded company unintentionally reveals his or her business’ quarterly profits while getting a haircut. If the stylist uses this information and trades on it, this is a grave, but common example of insider trading. There is also potential for SEC involvement in this situation, as well.

Boiler Rooms

A boiler room is a location or operation where high-pressure salesmen operate as a call center and pitch speculative, even deceptive, security investments. This type of fraud was named after its high-pressure technique and should be left alone by investors.

Ponzi Schemes

Named after Charles Ponzi, a trickster from the 1920’s, these types of schemes guarantee much higher rates of return to the investor than the any other competitor in the marketplace.

Basically, a Ponzi scheme takes cash from new investors in an effort to pay prior investors’ interest checks. The scheme constantly requires an influx of cash from new investors or the lie comes crashing down. Of course, this is eventually what takes place and government intervention prevails.

Safeguard Yourself and Avoid Being A Victim

In summary, there are 2 concepts you should take away from this post:

  1. Controlled, domestic securities have a lower danger of fraud than their uncontrolled and overseas equivalents. That does not mean you should put up your defenses by exclusively using regulated securities. All it implies is that the danger of financial investment fraud is lower when regulations are imposed.
  1. Your very first line of defense against securities fraud is a healthy sense of privacy. Your 2nd line of defense is a comprehensive due diligence investigation of any investments of which you are unfamiliar.

Keeping yourself informed now will help you avoid becoming a victim later. If you believe that you potentially being scammed by a thief, contact us at Aiman-Smith & Marcy. Our firm has recovered millions of dollars on behalf of consumers over the last decade. We can help you evaluate an offer or current investment situation to ensure that your interests are well-protected.