15 Examples of Securities Fraud

Securities Fraud: How the Stock Investment Scams Work

In light of the recent events worldwide, there has been a proliferation of financial scams in the stock investment niche. These types of securities fraud come in all shapes and sizes, and anyone can easily fall victim to them. Please take a look and educate yourself before it’s too late, as an investment fraud lawyer may cost you an arm and a leg just to try to get your money back.

In this article, we’ll be taking a look at some of the most popular examples of scams perpetrating around. Let’s take a look, in an aleatory order, at the darker side of the securities industry.

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1. Stocks Promissory Notes

The Promissory Note Scam takes place when a false company offers individuals some unique financial benefits. Anyone who accepts these terms only ends up wasting money to purchase non-existent investments. Usually, these promissory notes are sold by independent sales agents and are known to offer high returns with little or no risks guaranteed.

Make sure that you take note of any investment that offers rates that seem too good to be true, as well as unbelievable guarantees. This combination is usually designed to scam you and put you in an uncomfortable position.

Also, take note of exerts selling investment products that are not in their area of expertise—for instance, an accountant looking to sell investments.


securities fraud lawyer


2. Precious Metals Mirage

Precious metals command a lot of monetary value and can be stored and sold in exchange for cash. It’s no wonder that a lot of people see them as a viable investment opportunity. It’s an excellent idea for anyone to have their gold reserves or any other precious metals. But there are a variety of ways in which these precious metals can be used to ripoff from their money.

Take note of a variety of scammers that may claim that they have discovered a new technology to help precious mine gems from non-existent or closed mines.

On the other hand, specific dealers may grade counts at a value that is higher than what is actually expected. A priceless gem could also not be worth much due to flaws in its structure.

Last but not least, a seller may sell non-existent coins and still charge you to store them for you. The problem with this is that you end up paying to store a precious metal that isn’t there.


3. Illegal Sales Practices

Purchasing stock should be a conscious and educated decision by you. Do not accept to buy an investment based on a fake call. Also, do not yield to a broker who is seemingly pressuring you to buy what they are selling.

Deceptive sales practices may involve the use of different tactics to trick you into an investment. Such tactics include intimidation throughout the process. They may seem to be presenting you with the best deal you’ve ever seen or may even resort to different promises.

Take some time to observe just how desperate they are. Does the person sound like a real broker? What type of deals or investments is being offered? A legitimate deal doesn’t require any desperation, does it?

stock investment


4. Prime Banks Guarantee

This Prime Bank Guarantee is perfect to appeal to conspiracy theorists or any privileged members of the society that are rich enough to invest in these banks. Huge sums of profits and access to portfolios of some of the top banks in the world are part of the whole appeal of prime banks.

There’s usually a lot of promise about these prime banks, but the truth is that they don’t exist. It’s all a lie. Don’t believe in the myths of Prime Banks or other ways that this fraud may take place. They may use convincing terms such as revolving credit guarantees, but it’s all an attempt to rip you off your money.

Do not invest your money in any unverifiable, high-yielding debts. You must be aware of the source of any equity you are offered. A common thing to look out for is when the advertising company is offering you this promotion because you’re a part of a “selected few.”


5. Social Media Sharks

The advent of new technology and communication tools has given scam artists a lot of room to exploit. In the past, the scammers have made use of emails, telegraph, and the telephone. In recent times, they now adopt the internet, all the social media platforms (Facebook, Instagram, and Twitter) and even the WhatsApp conversation. The internet has made it easier to engage in investment frauds.

Scammers can quickly gain access to lists of unsuspecting people (here is the Hack Facebook Account Scam), make use of special tools to gather information about their victims, and create fraudulent posts at any time they want. They can also communicate with people online with anonymity.

By setting up a malicious website or engaging people in chat rooms, a scammer can reach millions of people at a time. They usually employ different tools to help them create a fake online presence and shield their real identity from potential investors. Also, internet securities fraud may take the form of online publishers who have been paid to recommend poor investments.

Before committing to any investment, you have to research these unknown sources that you have come across online. Search for more information about the resources online and offline. Avoid agreeing to deals immediately, no matter how good it seems. Keep in mind that anyone could mask their real identity for a small fee online. It’s up to you to discover what’s real or what’s not.

Watch the video below to see how to identify if a social media account if a fake:



6. Affinity Group Trickery

This fraud is an excellent example of when investors trust the wrong person. For this scam, investment fraudsters exploit details of their victims, such as their age, ethnicity, age, sexual identity, or occupation. They must make use of essential information about you to gain your confidence and preying on your human nature. Affinity frauds are different from regular frauds perpetrated by strangers.

A good example of how this fraud is done is when the advertising company employs the use of someone in the group who knows virtually nothing about investments into defrauding other members of the group. Usually, a group leader is sold this investment and several other lies along with it. These lies may then compel the leader to convince other members of the group to join in the venture. Members of the group will only invest based on advice from their leader and may be unaware that they are entering into a bad investment.

Another example of affinity fraud is senior fraud. Seniors are usually targeted because they have managed to acquire savings and a lifetime of investments. There are a variety of other factors that make seniors susceptible to scams and frauds.


7. Engineered Institutionalized Accounting

Bull markets are known to offer investors and companies a lot of freedom that can lead to the adoption of dubious business practices such as institutionalized securities fraud. Major companies probably even have securities fraud attorneys that represent them well.

Only a few people can catch on to the lies and defects of the market, as others spend their time trying only to make more money. When everything clears up, then the institutionalized securities fraud becomes more evident. Examples of this type of fraud include the ‘in-house’ analysts’ recommendations and the fabricated accounting loops. How do they work?

In the analyst case, a particular type of investment fraud involves brokerage firms combining their services to institutions and individuals at the same time. Hugely profitable investment banking relationships often pollute individual investor ‘suggestions’ by in-house analysts. This way, individual investors lose money at the expense of maintaining good business relationships.

In the other example, a good number of the world’s biggest corporations, namely Enron, WorldCom, and so on, managed to make away with the investments of millions of people through engineered accounting loops. Totally illegal.

Ordinarily, there are regulations and regulatory bodies that are meant to scrutinize their activities, but during great bull markets, its impossible to control their operations effectively.

The scam works because almost none of the investors are aware of the dangers caused by the bias of investment companies.

wall street sign


8. Questionable Stock Brokers and Unlicensed Sales Agents

Don’t just go into investments without considering what it would really cost you. Several details can be added to an investment contract. Make sure that you go through your brokerage statements to reveal any hidden fees, trades, or bad financial clauses.

Failure to identify if any of these are hidden in your brokerage statement may cause you to lose vast amounts of money or waste money on a worthless investment.

Also, a broker may provide you with an investment that isn’t exactly what you need. But this can only be determined by scrutiny from the potential investor.

On the same token, another form of investment scam takes place when scammers attract independent insurance agents, financial advisors, or accountants as sales representatives for the fraudulent company. These sales agents are perfect for these companies because investors trust them, but they are unqualified to handle such complicated transactions or discover illegal activities. Don’t be fooled as these guys know little or nothing about protecting you from these companies’ deceptive practices.

Usually, these sales agents are known to offer investments with high returns and little or no risk at all. They will also provide you brokerage CDs, viatical contracts, promissory notes, equipment leases, factoring, and other types of false investments. Because you trust your independent sales agent due to the number of services they provide for you doesn’t make them qualified experts. You may require some more professional help.


9. Legal Investment But Wrong Market

Certain investments may be referred to as securities frauds when an individual ends up purchasing the wrong type of investment. Without adequate information, an individual may end up with an investment that doesn’t suit any of their needs. A good example of this investment is variable annuities. Variable annuities are known to cause people expensive surrender charges, costly commissions, and poorly structured packages.

Just like variable annuities, callable CDs are profitable with long-term certificates, which can be redeemed by an issuing bank. The biggest problem with this type of investment is that they can never be withdrawn early. In an event when the investor needs liquidity, an early withdrawal will result in high fees. The long-term nature of this type of investment makes it inappropriate for anyone that needs money quickly. Making this type of purchase leads to disappointing results.


10. Advance Fees

This scam is one of the most popular types of security frauds that you can find anywhere else. For this type of fraud, the scammer looks to steal the advance fees of the investor in their bid to own a more substantial investment. The scammer will provide a convincing approach to any unsuspecting investors with realistic-looking security. For instance, the scammer may ask you to make an upfront payment to get some units of shares or a particular shipment of coal, gold, and other commodities. However, it’s all fake, and you won’t be purchasing anything. The shares won’t be yours, and the commodities will never arrive.

Also, you may be contacted by a company looking to offer you an interest-free loan, but with a catch; you have to pay an advance fee for your application to be considered. This is just another sham. Think about it. If they want to give you such a great loan, why do you have to pay for it first?

Regardless of the service, product, or promotion that you are being offered, they’ll try to get an advance fee for something that you’ll need only much later. As soon as you’ve paid the fee, the scam artists have earned his profit.


11. Penny Stocks

This activity is the queen of all securities fraud, but you are probably familiar with it. Penny stocks are one of the oldest investment frauds that you’ll find today but still manages to attract new people every time.

First of all, you have to take note that only greed attracts you to a penny stock. The dream of owning the next biggest start-up is sometimes too much of a promise to resist. Another appealing factor about penny stocks is the feeling that people can invest in more stock using a lesser amount of money, such as “buying 30,000 shares at 8 cents a stock”. It looks like a fortune, while in reality is a $2,400 investment – which could have been 30 shares at $80 apiece as well.

Usually, this mistake comes as a result of inexperience or being manipulated into making such a purchase. These people love the idea that only a slight change in the value of their stock could offer them almost double the amount of their investment.

types of securities fraud


However, there are a few problems with a penny stock that is worth taking note of. A major one is the penny stocks’ low liquidity. They are stocks characterized by low prices, small daily volume, and minimal stock float. Due to this, they are an excellent choice for manipulative promoters who want to control the price and fraud investors. A good example of this is the Pump and Dump Scam, depicted very well in the movie The Wolf of Wall Street.

Also, take note that low liquidity can make it much harder to sell large units of this stock when you want to leave the market.

Another vital factor to consider is the lack of information. A lot of penny stock is terrible quality and does not meet up to requirements for SEC (Security and Exchange Commission) reporting. Providing potential investors with inadequate information is a clear sign of fraud because it makes it harder to understand the real motives of the advertising company.

Also, you’ll find that there’s not much coverage or scrutiny on these stocks, making it easier for scammers to get away with their illegal activities. Scammers will only operate where there’s the least chance of getting caught, which makes penny stocks a target.

12. Viatical Settlements

Viatical settlements were initially designed as a means to help people when in times of need. They were created to help critically ill people settle their medical bills by selling the death benefits included in their life insurance for some immediate liquidity. Its a form of last resort to keep people from being stuck with unbelievable hospital bills.

There’s no problem with a regular viatical settlement. However, scammers have found a way to defraud people with them through illegal practices. To do, this the settlement is most often misrepresented. Some slight changes in the details could cause a lot of problems for the seller.

For instance, the health condition of the sick person (seller) may get better or be falsified. This would affect the value that will be gained on the investment. Also, the insurance could be rendered invalid due to certain applications, when the investment does not exist at all or when its benefits have been tampered with.

This type of viatical settlement is considered to worth much lesser than the original value. Imagine how much of a loss that would be. Viatical settlements are complicated investments that shouldn’t be entered into without prior knowledge or risk turning up with a lousy investment all-together.

13. Offshore Investing and Legal Assistance

Money doesn’t operate in an offshore account, as it would domestically. As soon as your money leaves the country, the laws that protect it change immediately. This type of investment would require some extra diligence on your side because domestic regulations no longer apply. If you don’t know what you’re doing, it may prove costly.

A lot of investors are unaware of the laws of their domestic country talk less of that in a foreign country, not to mention that it’s almost impossible to find a securities fraud attorney in that particular location.

Many laws and regulations that hold in your country may be invalid somewhere else. In the case of any defaults, you may be unable to seek desirable legal action or redress. Make sure the laws are favorable to you before you send your money overseas. This would save you from dicey situations.

14. Ponzi Schemes

Ponzi schemes are another trick you shouldn’t fall for, although they are as old as the investment concept. Ponzi schemes utilize so-called lucrative investment structures to attract more people. Any money paid by a new investor is used to settle those who have been in the scheme longer.

The payments to the early investors usually act as a form of testimonial or integrity check, which convinces new people to join and continuously take money from them. Ponzi schemes do not feature any investments. As such, the whole plan crashes when the new investors are unable to offset the existing investors. Sometimes, their activities are halted by financial regulators.

securities fraud


15. Random Business Investments

The hook for this security fraud is “an investment opportunity in a profitable business with low-risk returns.” Take a look at some of the business which is popularly used to trick people into this of fraud. The most common one lately is the investment in start-ups and new technology. Some people claim to be looking for funds to create their new patent. They may even come with you with an invention that promises to take the whole world by storm. These claims are usually fake.

Another pitch is the investment in the modern industry of oil and gas. Watch out for any deals that promise “working interests” in pirate private oil wells. An example of this fraud can include fake drilling equipment installed on lands without any oil or dry sell that has produced in a long time. There’s no way to earn from such investments.

There are many types of security fraud to watch for, and they have been listed above for you. Potential investors should take note that these various practices operate using similar principles: little to no risk and the highest returns on investment.

It’s also essential to minimize deals with any offshore companies. Their activities are usually harder to regulate. Update yourself with information because scammers change their tactics very often. Never hesitate to investigate the authenticity of any suspicious deals. It’s better safe than sorry.

Keep investing in building a secure future for yourself and your loved ones. You’ll come across some great investment plans along your way.

Securities Fraud: How To Report

Warn your family and friends about these 15 types of securities fraud by sharing it on social media using the buttons provided. You can also officially report the scammers and any other questionable brokers to the Federal Trade Commission using the link below:

Report To The FTC Here


How To Prevent Identity Theft and More

If you want to be the first to find out the most notorious scams every week, feel free to subscribe to the Scam Detector newsletter here. You’ll receive periodic emails – we promise not to spam. Meanwhile, educate yourself with some other fraud-related articles right under this paragraph, so that you can protect yourself in many other aspects and niches. Last but not least, use the Comments section below to expose other scammers.

Here are some must-reads for the end:

Credit Card Fraud

Final Expense Life Insurance Scam

How to Prevent Identity Theft

Bad Credit: Auto Loans Fraud

Government Surplus Auctions Scam

Regional Sales Representative Scam

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selma hrynchuk
Selma HrynchukSelma is a fraud prevention specialist renowned for her expertise in private eye investigations and a remarkable partnership with law enforcement agencies. Beyond her investigative triumphs, her public speaking engagements and written works have empowered countless individuals to protect themselves and stay ahead of deceptive schemes. Selma's legacy shines as a tenacious agent of change, unyielding in her commitment to battling fraud and ensuring a safer world for all.

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