Stocks and investments are relied upon to finance a child’s college education, fund retirement or guarantee a nest egg that will survive uncertain economic times. These goals, however, may be shattered if brokers or investors took an investor’s money through securities fraud. Fortunately, securities law enforced by federal and Texas agencies
governs these transactions and imposes severe legal penalties for violations.
Securities fraud is an illegal activity that deceives investors and manipulates financial markets. Signs of this illegal activity include an offer that sounds too good to be true, high pressure sale techniques, unsolicited sales tactics, and questions about personal information such as social security numbers or credit card information.
According to the FBI, securities fraud includes high yield investment fraud, Ponzi schemes, pyramid schemes, advanced fee schemes, foreign currency fraud, broker embezzlement, hedge fund manipulation and late day training. Pump and dump schemes are a more recent problem.
High yield investment fraud
This scheme is usually associated with of guarantees of high rates of return with minimal or no risk. Investments such as securities, commodities, real estates and precious metals may be targeted. Signs of this fraud include unreasonably optimistic investment opportunities and generally unsolicited offers made in-person, by telephone or through e-mail.
Ponzi and pyramid schemes
Fraudsters take money from investors to pay high rates of return that they promised to earlier investors. Payouts of money from the scheme are intended to give the impression of a legal money-making venture behind the fraudster’s promotion. But money for these payouts come only from the investors.
Advance fee schemes
Investors are asked to advance comparatively small amounts of money with the hope of getting much larger gains. To participate, investors must send money to pay for expenses such as taxes or processing fees.
These gains are never realized, however, because there is no valid underlying investment. The fraudster appropriates the fees sent by investors and never pay any return on the investment.
Pump and dump
This is relatively recent scheme that relies on the internet. The pump and dump scheme involves the use of chat rooms and other online forums to make fraudulent or false claims about stocks. These are intended to increase or pump the stock price. After the stock prices reaches a certain level, the perpetrator engages in the dump by selling the stock.
Avoid fraudulent schemes
Investors should not rely on solely on the seller’s representations. Do not take the solicitor at face value. Investors need to do their own research on the investment and the promoter, find out whether there were any complaints filed with the US Securities and Exchange Commission and the Texas State Securities Board, and research whether there were any complaints filed in other states where the company was incorporated.
Investors should ask promoters whether they are being paid, and the amount, for promoting the investment. Request a written offer, the prospectus, its annual report, offering circular or financial statements which need to be compared to the verbal offer.
The SEC and the Texas State Securities Board may investigate and prosecute securities fraud. But an attorney can also help victims of these schemes obtain evidence and develop a private legal action to compensate for financial losses.