Security Fraud is an investment fraud that entices or advises investors to either sell or buy a particular security based on false information. Usually, this fraud is very prevalent in the USA. It is designed so that the fraudster would obtain a profit or monetary gain for the victim.
There are several ways investors are deceived in security fraud. One could be a false material error in the financial statements of an organization. Another could be the manipulation of stocks or shares in the company. Security Fraud is considered an illegal act in the USA and could attract serious legal consequences.
This article is designed to help you detect some of the common types of security fraud in the USA. It also highlights some of the common security Fraud cases in the world.
Types of Securities Fraud
Here are several types of security fraud in the USA.
Ponzi Scheme
The Ponzi scheme is one of the security frauds prevalent in the USA. It is designed to deceive investors into making false investment decisions with no risk attached to it.
This scam has been on the rise since the early 20th century. This scam encourages people to invest in a particular project that seems to be productive. It assures investors of a high ROI.
In extreme cases, scammers would provide examples of former beneficiaries of this investment in a bid to entice you. Of course, a new person in this sector may fall victim to these traits. However, it is advised to conduct research before investing in any asset or security.
Investment Fraud
Investment Fraud encourages the victim to invest funds in an unregistered security. The fraudsters assure victims of high investment. In addition, fraudsters may encourage people to publicize this platform. Doing this may likely increase the likelihood of more gains for the scammers.
Insider Trading
Insider Trading is another example of security fraud in the USA. As the name suggests, this kind of fraud makes use of inside information to make investment decisions. The information supplied to an investor through the backdoor is usually used to either buy or sell an asset.
An investor can easily rack up millions of dollars through the information supplied. However, the potency of getting caught is high in this kind of fraud. In some cases, the money can be split between the insider and the investor. Victims of these scams are usually apprehended by the Fraud Unit.
Increased Fee Scheme
An increased fee scheme is a scheme designed to deceive investors into receiving high ROI. It claims that users can pay for a scheme and they will receive higher profits in the future. This is just totally false. The truth is they would not receive any money for this.
Unauthorized Trading
This is another kind of fraud that is prevalent in the USA. It is a kind of fraud where a representative makes a financial transaction without your approval.
This kind of fraud only exists when the representative has access to your financial reports. The scammer would either try to buy or sell securities to earn money. Of course, make sure to report to the fraud Unit if you observe any of this.
Material Fraud
Material Fraud is a fraud that happens when important information about the security is not disclosed. For example, you are about to buy a volatile security but you are not told that it is subject to change periodically.
Most times, representatives fail to disclose this information to scam you. It is always advised to make your findings before trading in an asset.
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Biggest stock market frauds in the world
Here are some examples of the biggest stock market frauds in the world:
Centennial Technologies Fraud in 1996
The owners of Centennial Technologies were one of the fraudulent organizations in the 1960s. It all started when the owners of Centennial recorded an amount of $2 million in revenue from selling Memory Cards. However, this was a lie. The company was exclusively dealing in fruit exportation.
When they were caught the company did something remarkable! The workers of Centennial Technologies produced fake documents as though they were making sales from Memory Cards sales.
Later on, they were caught red-handed doing this. The Fraud Unit adjudged that they were guilty of the sale of fictitious goods, amongst other charges.
Bre X Mineral Fraud in 1997
The Bre X originally were into the business of gold mining. The company’s roots can be traced to Indonesia. Bre X had a gold storehouse of up to 200 million ounces of gold.
Of course, rumors about this made the stock price shoot up to about $280. The news of this made people millionaires overnight.
Unfortunately, Bre X met its Waterloo. The gold mines were investigated to be fraudulently obtained. As a result of this, the price of this crashed after a few weeks. Of course, many investors lost huge amounts of money.
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Conclusion
The United States of America prohibits security fraud in its entirety. A person caught can serve up to 18 years in prison when caught. In addition, make sure to conduct extensive research before investing in a security.