Common Forms of Securities Fraud to Be Aware Of

Securities Fraud

Securities fraud is a real threat to anyone who invests. Even regulated domestic brokers and investment dealers can fall prey to fraud. Beware of bogus investments that offer above-market returns and guarantees.

Common forms of securities fraud include:

  • High-yield investment schemes.
  • Ponzi & pyramid schemes.
  • Viatical settlements.
  • Advance fee schemes.

Viatical Settlements

With a viatical settlement investment, you may get quick cash by selling the death benefits from a life insurance policy. It is a type of securities fraud and can be done by various people, including brokers, investors and insurance agents. Viatical settlements are designed for people with a terminal illness who need access to cash for medical expenses. They can also be used to fund retirement. If you are healthy and want to use a viatical settlement for non-medical purposes, you should consider a life insurance policy instead.

If you are considering a viatical settlement, ensure you understand all the details and consult a financial advisor. The tax consequences of a viatical payment are complex and should be considered carefully. Also, be aware that the life insurance policy buyer will closely monitor your health condition and may affect how much you receive. Be vigilant and stay educated about the many faces of securities fraud. So what is securities fraud? Securities fraud is a severe offense that may cost you and people you care about a lot of money. It is critical to know the warning signs and identify when they occur so that you can act quickly and seek legal assistance if necessary. Securities fraud is most prevalent in the micro-cap stock market but can happen anywhere.

Too-Good-To-Be-True Schemes

The securities fraud section investigates investment fraud schemes that offer returns that seem too good to be true. These schemes are typically conducted through direct solicitation through phone calls and email messages. They are characterized by promises of high rates of return with little or no risk, often disguised as short-term promissory notes or loans. These schemes may also be Ponzi or pyramid schemes, which involve leveraging the money invested by new investors to pay higher-ranking (and often earlier) investors. Fraudsters may also attempt to defraud individuals through community-based investment fraud, enticing investors to invest in groups with common ties, such as ethnicity, nationality, religion, sexual orientation, or military service. These schemes may be perpetuated through social media posts, direct contact, or enlisting group leaders. In the wake of Bernie Madoff’s massive scheme, experts warn that these frauds could be more widespread than ever. Investors may need to be more cautious due to a thriving stock market. At the same time, a decrease in SEC investigations of investment fraudsters resulting from a de-regulatory environment at the federal level may contribute to the rise of such fraud.

Ponzi Schemes

Taking its name from 1920s fraudster Charles Ponzi, this type of securities fraud relies on new investors to pay off returns to earlier backers. Often, the money paid to early investors comes from the fraudulent fraudster’s assets or the pooled investment dollars of later victims. The scam falls apart when the fraudster can no longer attract new investments or is forced to liquidate the assets.

Crooks perpetrating Ponzi schemes promise participants enormous profits from a can’t-miss investment or business opportunity. The scammers can lure people with promises of big payouts by offering unusually high rates of return, leveraging their connections, using false credentials and other fraudulent means. Ponzi schemes are especially dangerous for older Americans who have spent years amassing their retirement savings, which fraudsters covet.

Investors can spot a Ponzi scheme by noticing if their investment is not registered with the federal or state financial regulators. Generally, any investment that does not require an initial registration should be considered suspicious, especially one that offers guaranteed or highly consistent returns. Investors should also look for issues with paperwork or account statements, which may indicate that the investment needs to be invested as promised. In addition, if a person is not licensed or registered to sell or advise on securities, that should be viewed as a red flag.

Internet Fraud

Internet fraud encompasses various cybercrimes, whether email-based phishing scams, health care fraud or hacking into a business’ network to steal personal or financial information. Criminals can commit these crimes through both manual and automated efforts. Manual attempts include emulators (software mimicking mobile devices) or bots (computer programs that speed up and automate tasks). Hacking can take the form of breaking into a website to change information, sending malicious software (malware) to a victim’s computer to infect it, or denying site access through denial of service attacks. The IFCC describes securities fraud as “any scheme to defraud investors by making false investments or obtaining the proceeds of fraudulent transactions.” Securities fraud schemes may involve offering bogus stocks and high-return investment opportunities, market manipulations, pyramid and Ponzi schemes and other “get rich quick” offerings. The IFCC also mentions identity theft and piracy, which includes stealing or illegally copying another person’s personal identifying information for economic gain. Penal Code SS 530.5 states that identity theft can occur when the perpetrator obtains someone else’s date of birth, place of birth or social security number, driver’s license or passport number, credit card number or other account information. The IFCC describes that duress and coercion are valid defenses to this crime when using threats, violence or other force.