Types of securities fraud

On Behalf of | Apr 6, 2021 | Securities Fraud |

Investment fraud in Greenville, South Carolina, is a type of white-collar crime that deceives investors for profit. They mostly involve the illegal trading or selling of financial tools, such as stocks and bonds. There are several common types of investment fraud schemes.

Pump-and-dump

The pump-and-dump scam occurs when the scammer buys a large supply of stocks at the lowest value. This scam commonly involves penny stocks, because they are the easiest to manipulate. The scammer attempts to profit from falsely inflating the low-cost stock through false information and exaggerated claims, creating a demand for the stocks and increasing the value.

For example, they may advertise a start-up company with little or no history being the next one to grow big or “once in a lifetime” opportunity. The scammer sells their shares after they establish a price momentum, lowering the stock value.

Pyramid and Ponzi schemes

The Ponzi scheme and pyramid scheme commonly find investors through unsolicited emails, but they differ. A Ponzi scheme commonly involves promising investors a high return at little or no risk. The money the scammer uses to pay them comes from other investors, but they think the investment scheme works.

Similar to a Ponzi scheme, a pyramid scheme needs new investors to stay afloat. The difference is it commonly involves goods or a service that appears to be a legitimate multi-level marketing program. For example, they may promise investors fast money by selling a membership, but they have to buy the service first and recruit others under them to profit.

Offshore investments

Offshore investment scams entice U.S. investors to send them money using various forms, such as emails or word-of-mouth. This investment takes advantage of Regulation S, which doesn’t require the registering of securities outside the U.S.

The scammer offers these stocks to the U.S buyer promising a high return along with avoiding taxes. Offshore scams could also involve investing in a business, such as an offshore bank.

Getting charged with securities fraud may have several legal consequences, including hefty fines and jail time. The accused needs a good defense team to fight charges or make plea deals.

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