Securities fraud, sometimes referred to as investment fraud, is a type of fraudulent practice in which investors or customers are led to make either a purchase or sale in the commodities market that is based on falsified information.
Oftentimes, the false information offered by the offender results in significant losses to those who were led astray. Investment fraud is a significant violation of the laws put in place to uphold fair securities regulations, and oftentimes, investment fraud comes under the guise of risky but seemingly lucrative investment opportunities.
Oftentimes investment fraud is the greatest threat to investors who have a low level of experience or sophistication to tell when a stock is being grossly misrepresented.
In addition to taking the form of inaccurate or false information, this form of fraud can also occur through legitimate theft from investors through manipulated stocks or falsified financial reports statements to fool corporate business auditors. The range of different investment fraud types are diverse, and the following are some of the most infamous.
In the modern era, one of the most common forms of investment fraud is Internet fraud. A popular form of Internet-based securities fraud occurs on forums or Internet boards, in which the deception takes place through the intentional inflation of the offender’s stocks. The inflated price of the stock is sold through misleading information or fabricated positive affirmation that leads the victim party to purchase it under false pretenses.
Another form of investment fraud is insider trading. Insider trading is a form of securities fraud in which a corporation’s security or stock sold is by inside personnel who have access to information that an individual unaffiliated with the company would not have, making them ineligible for legitimate trading of the company stock.
Insiders who would be capable of committing insider trading fraud include employees, directors, or any other officers who hold a post that equates to more than 10% of the firm’s total shares. Though insider trading can technically be legal under certain strict specific circumstances, there have been many circumstances in which these conditions are ignored.
Accountant fraud, which grew heavily in the early 2000s, is a form of investment fraud in which financial reports are falsified by accounting firms. In an incident of accountant fraud, corporate clients are misled by accounting firms that either fail to provide truthful financial accounts or simply neglect to identify falsified accounts. The impact of accountant fraud can equate to billions of dollars in annual losses if left unchecked.
Microcap fraud is a form of investment fraud in which companies that have a market value of under 250 million have their stocks promoted deceptively before being sold to an unaware buyer. The most popular kind of stock to involve in microcap fraud is a penny stock, and though penny stocks rarely account for more than five dollars a share, the annual losses that result due to microcap fraud have consistently been in the billions.
Mutual Fund Fraud
Mutual fund fraud is a form of investment fraud that puts customers at a significant risk of loss for the benefit of dishonest mutual fund managers. Mutual fund fraud commonly occurs when large-scale fund firms and brokerages secretly engage in delayed trading without the knowledge of their clients. Though there may be no overt securities fraud at a glance, some mutual fund firms have been found to have been operating under undisclosed conditions in their contracts that permit disadvantageous trading practices at the customers’ expense.