Securities Fraud—A Basic Overview

The nation's economy is increasingly dependent on the success and integrity of the securities and commodities markets. As a result, the FBI diligently investigates criminal activity in the markets and against investors whenever it arises.

Definition

The term Securities Fraud covers a wide range of illegal activities, all of which involve the deception of investors or the manipulation of financial markets.

• High Yield Investment Fraud
• Ponzi Schemes
• Pyramid Schemes
• Advanced Fee Schemes

• Foreign Currency Fraud
• Broker Embezzlement
• Hedge Fund Related Fraud
• Late Day Trading

High Yield Investment Frauds

• Characterized by promises of high rates of return with little or no risk.
• May involve various forms of investments (e.g. securities, commodities, real estate, precious metals, etc.)
• "Too good to be true” investment opportunities.
• Perpetrators may contact victims by telephone, e-mail, or in person.
• The offers are generally unsolicited.

Ponzi & Pyramid Schemes

• Use money collected from new victims to pay the high rates of return promised to earlier investors.
• Payouts give the impression of a legitimate, money-making enterprise behind the fraudster's story.
• In reality, investors are the only source of funding.

Advance Fee Schemes

• Victims advance relatively small sums of money in the hope of realizing much larger gains.
• Gains never materialize because there is no legitimate underlying investment.
• To participate a particular investment opportunity, victims must first send funds to cover “taxes” or “processing fees.”
• After victims send the “fees,” the perpetrators appropriate the funds and never deliver on the investment.

Protect Yourself—How You Can Avoid Becoming a Victim

Identify the warning signs

• Does the offer sound too good to be true?
• Is the seller using high pressure sales tactics?
• Was the investment offer unsolicited?
• Did the seller ask for information that is usually considered personal (e.g. social security number, credit card information, etc.) over the phone or Internet?
• If you answer “yes” to any of the above questions when considering an investment opportunity, you may be the target of a scam artist.

Take action to avoid fraud

• Don’t believe everything you are told by the seller. Take the time to do your own research on the investment’s potential.
• Don’t assume the solicitor is who he or she claims to be.
• Check with federal and state securities regulators to find out if there have been any complaints against the company.
• Ask the promoter whether—and how much—he or she has been paid to tout the opportunity.
• Ask where the company is incorporated and then call that state to ensure that the company has a current annual report on file.
• Request written financial information, such as a prospectus, annual report, offering circular, or financial statements, then compare the written information to what you were told.
• Get offers in writing and save a copy for your records.
• Check with a trusted financial advisor, your broker, or an attorney about any investments you are considering.

Report scams when they occur

• Don’t be embarrassed.
• File a complaint with the Securities and Exchange Commission, state securities regulator, or a law enforcement agency.
• Report the crime promptly—you’ll have a better chance of getting your money back if you do.