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Types of SEC Fraud

Types of SEC Fraud

 

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Internet Fraud

Sometimes referred to as pump-and-dump schemes, internet fraud often occurs in chat rooms, bulletin board, spam emails, and forums where false information is exchanged with the purpose of increasing the price in thinly traded stocks or stocks of shell companies.

When the price of the stock reaches a certain level, the offenders sell their stocks immediately. Those who innocently bought the stock become victims of fraud when the stock plummets.

Insider Trading

Illegal insider trading is when an insider trades based on information that is not public and was obtained either during the insider’s duties at the company or otherwise misappropriated.
While the term “inside trading” has a negative connotation, there are actual legal forms of it, such as when corporate insiders buy and sell stock within their own companies.

Microcap Fraud

In microcap fraud, companies that are valued at under $250 million are fraudulently sold to the public. Often, these microcap fraud schemes involve penny stocks, which are defined at stocks that trade at less than $5 a share.

Accountant Fraud

Accountant fraud is when accountants neglect to identify and prevent the publication of false financial reports of their corporate clients in order to mislead the public about their clients’ financial status.

Boiler Rooms

A boiler room refers to centers of activity that engage in selling questionable goods via telephone. In boiler rooms, brokers can pressure clients into microcap schemes by offering clients fraudulent trades that benefit the brokers’ firm. Securities sold in boiler rooms include microcap stocks, private placements, and even non-existent stock.

Ponzi Schemes

A ponzi scheme is an investment fund where investors end up funding the withdrawals, rather than from actual profit earned. The Ponzi scheme usually entices new investors by offering returns other investments cannot guarantee, in the form of short-term returns that are either abnormally high or unusually consistent. The perpetuation of the returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from investors to keep the scheme going.