Federal Bureau of Investigation (FBI) statistics show that cases of security fraud have risen from 1,139 in 2005 to 1,510 in 2009. Securities fraud is a broad term encompassing many types of illegal activities. However, they all involve deceiving investors and manipulating financial markets.
The FBI says that the country's economic wellbeing has become increasingly tied to the success and reliability of the securities markets . The agency has devoted a webpage to help consumers understand the possibilities of deception that dishonest characters perpetrate against unknowing investors and the illegal influence they exert on financial markets.
Deception of Investors
Different types of securities fraud include:
High yield investment fraud: Be wary of promises that appear to be too good to be true. Individuals engaged in this type of fraud are told they can make a lot of money with little or no risk. A number of kinds of investments are used to defraud consumers, including securities, commodities, real estate and precious metals. These type of criminals usually make the first contact using email, the phone or in person.
Ponzi and Pyramid Schemes: The dishonest person perpetrating a Ponzi scheme uses money from new investors to pay former investors. They pay money that appears to investors to be legitimate, but in fact, the only source of funding for these schemes are the investors themselves.
Advance fee schemes: Targets of the scheme first pay a small amount of money, hoping much larger gains are to come. However, because no real investment is involved, victims never realize large gains. To join in these types of investments, investors are asked to first pay "taxes" or "processing fees." Once an investor sends the fees, she or he is never paid and is left holding the bag.
How to Safeguard Yourself
The best ways to protect yourself involve a generous dose of doubt when someone approaches you with an investment you can't lose on. If something sounds too good to be true, it often is. Does the seller use high pressure? Did the seller approach you, instead of the other way around? Did the seller ask for personal information such as a social security number or credit card information?
Take action, the FBI says. Be wary of what your seller says. Look into the investment proposal for yourself. Don't assume the seller is who he or she claims to be. Find out from federal and state securities regulators if anyone has filed complaints about the company. Ask the seller how much he or she is being paid.
Find out where the company is incorporated and check with state officials to see if a current annual report is available. Ask for written information, including a prospectus, annual report or financial statements. Compare that information with what the seller told you. Make sure the seller's offers are in writing and be sure to keep a copy. Double check the proposal with a professional you have faith in such as a lawyer, your broker , or you financial advisor.
When a scam occurs, act quickly. Take your grievance to the Securities and Exchange Commission , state security regulators, or a law enforcement agency. The sooner you report the crime, the more likely you are to recover your money.
Manipulation of Financial MarketsManipulation of financial markets occur when dishonest persons try to interfere with the free and fair operation of the market. These individuals promulgate misleading information in regard to the price of or market for a security, commodity or currency. Different types of market manipulation, as described in Wikipedia, include:
- Pools — agreements among a group of traders who authorize one person to trade in a particular stock and then share in the resulting profits or losses
- Churning — occurs when someone both buys and sells stock at the same price to increase activity, attack more investors, and raise the price
- Runs — acting in order to create rumors to increase the price of a security
- Ramping the market — attempts to artificially raise the price of certain securities and create the impression of voluminous trading in order to make a quick profit
- Wash trade — selling and rebuying the same security in order to generate activity and increase the price
- Bear raid — trying to put downward pressure on a stock by heavy selling or short selling
Talk to a Securities Fraud Lawyer
Our attorneys are experienced in securities law. We represent individuals in securities fraud claims nationwide. To find out if we can help you, schedule a consultation with an attorney from our firm today.