An Overview of Securities Fraud (Part 1)

September 6, 2013

Securities fraud, the criminal act of lying to investors about the value of stocks or commodities, can financially devastate investors and may force them into filing for bankruptcy.

Securities fraud, the criminal act of lying to investors about the value of stocks or commodities, can financially devastate investors and may force them into filing for bankruptcy.

Securities fraud, which may also be referred to as investment fraud or stock fraud, is the criminal practice of intentionally misrepresenting the value of stocks in an effort to entice investors to buy or sell said stocks, which, in turn, causes them to lose money. Typically, those who are victimized by securities fraud are investors who are not familiar with the stock market and/or who do not have the experience to properly assess the level of risk associated with their investment.

Types of Securities Fraud

Some of the specific types of securities fraud that may be perpetrated by stockbrokers, chief financial officers or others include (but are not limited to):

  • Manipulating stocks in “pump-and-dump” schemes (by, for example, falsely publicly reporting that stocks are doing better or worse than they actually are)
  • Doctoring a company’s financial reports (to make the company appear to be earning or more less profits than is actually the case)
  • Deceiving corporate auditors
  • Embezzling funds from stock holders
  • Committing insider trading (buying or selling stocks based on information that is not publically available)
  • Creating dummy corporations modeled to mimic existing corporations (and then selling stock in these dummy corporations by getting investors to think they are purchasing stock in the real business)
  • Operating Ponzi schemes (in which investors in the scheme are paid by subsequent investors, rather than by an actual investment in some stock or commodity).

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Categories: Securities Fraud