SECURITIES FRAUD – ALL YOU NEED TO KNOW!

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November 24, 2019

With rising cases of investors losing their hard-earned money, securities fraud is becoming a topic of interest. Are you wondering what it entails? Worry no more! Here, we have prepared answers to commonly asked questions, to ease the work for you.

 

What is securities fraud?

As its name suggests, securities fraud (also known as investment fraud or stock fraud) is a series of illegal activities that are common in the stock markets. They involve the misrepresentation of facts or information meant to help investors in decision making. We came across this article recently : TG Daily Securities Fraud Defense Questions – which already dives deep into the most common questions revolving around securities and subsequent scams. We recommend you give it a read.

 

Are there any laws governing securities fraud?

Yes! Regardless of your country or area of residence, stock fraud is not only a criminal offense but also a civil tort. Each country will usually have regulations that are codified in statutes and Acts.

Furthermore, judicial precedents or judge-made laws also provide a basis for the regulation of securities fraud.

 

Who can commit investment fraud?

Anybody can commit the said crime. Consequently, any legal person can be subjected to the laws governing investment fraud. They include:

  • Natural persons; this includes individuals such as stockbrokers, or people posing as investment advisors.
  • Juristic persons; here, we have organizations, entities, corporations, and firms such as brokerage firms.

 

What are the common types of securities fraud?

There are a dozen forms of investment fraud, often categorized depending on how they are committed. The common examples include:

  • Internet fraud/ market manipulation

It is a form of investment fraud that utilizes internet platforms like e-mails and chat rooms. Here, the perpetrators generate and spread fraudulent information about stocks. Their goal is to increase or decrease the price in those stocks and then sell their shares.

  • Illegal distributions

This involves trading in securities contrary to the laws of the land. The main examples of illegal distributions include pyramid and Ponzi schemes.

You have probably been a victim, or knows someone who has. In essence, the schemes unsuspecting victims, who invest their funds and bring in more people under them. They then use the money invested by subsequent investors to pay the prior investors.

  • Insider trading

This is likened to a mole in a typical investigations team. In investment fraud, an insider who has access to privileged information uses it to meet their ends.

For instance, he can disclose it to another third party who will subsequently become an insider as well.

What are the tricks and hacks to employ to avoid being a victim?

You may not run away from fraudsters, but you can protect yourself by doing the following:

  • Always be curious. Understand every aspect of the investment.
  • Consult registered advisors!
  • Watch out for red flags, such as unrealistic investment returns