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Investment Fraud Investment fraud is a white collar crime and is also known as securities or stock fraud. This is the practice where investors purchase or sale decisions on the basis of fraudulent information, often resulting in losses, in violation of the securities laws. In basic terms, investment fraud consists of deceitful practices in the stock and commodity markets, and happens when investors are tempted to part with their money based on false statements. Investment fraud also includes flat out theft from investors and misstatements on a public company’s financial reports. Other actions that fall under investment fraud are lying to corporate auditors, embezzlement by stock brokers, insider trading, front running, and any other illegal acts on the trading floor of a stock or commodity exchange. Insider trading is the trading of a corporation’s stock by corporate insiders such as shareholders of more than ten percent of the corporation’s shares, directors, or officers. Microcap fraud is the fraudulent sale of stocks of small companies under $250 million market capitalization. The prevalence of this type of investment fraud has been estimated to run into the billions of dollars annually. It is estimated by securities regulators that investment fraud totals to around $40 billion a year. Investment fraud schemes can have a devastating impact on the viability and operation of the securities and commodities markets. Any investor has the ability to become a victim of investment fraud; however, people fifty years old and older more often fall victim to this type of fraud. Investors are not the only ones who lose in investment fraud. Creditors, employees, and taxing authorities come out as losers also. Potential perpetrators of investment fraud include any less than honest official within the corporation who has access to the financial or payroll statements that can be manipulated to overstate assets or revenues, and understate costs or liabilities. Even if the effect of investment fraud isn’t enough to lead to bankruptcy, a lesser level can possibly wipe out stockholders because of the leverage of value of shares upon the difference between assets and liabilities. This type of investment fraud is known as watered stock. Some warning signs of an investment scam to look out for are someone promising you that your profit is guaranteed, telling you that it’s an amazingly high rate of return, claiming there is no risk involved or that the offer is only available today, saying you can get in on the ground floor or that you would be a fool to pass it by, promising to get you the paperwork later, and telling you to just make your check out to them. Any of the above are warning signs that you need to step back and reevaluate the investment.
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