What Is Securities Fraud?


Securities fraud is a white-collar crime that disguises a fraudulent scheme to gain investors’ finances.

Key Takeaways

Securities fraud is a white-collar offense when investors receive incorrect information to make their choices.

If you are a victim of securities fraud, an experienced attorney can help you understand other options available to you to seek justice for your losses.

To commit securities fraud, perpetrators must have access to confidential information about a company’s financial performance or other material facts that are not available to the public.

What Is Securities Fraud?

Securities fraud is a white-collar offense when investors receive incorrect information to make their choices. Companies, such as brokerage firms and investment banks, can carry out fraud, along with stockbrokers, corporations, and individual criminals who may be involved in insider trading.

To commit securities fraud, perpetrators must have access to confidential information about a company’s financial performance or other material facts that are not available to the public. They then use this information to manipulate the market by buying or selling stocks at an unfair advantage. This can lead to significant losses for investors relying on fraudulent information when making decisions. In addition, it can result in civil and criminal penalties for those found guilty of securities fraud.

Who Commits Securities Fraud?

Individuals who commit securities fraud may include stockbrokers, financial advisors, or other professionals who are in a position to influence investments. They may use their knowledge and expertise to manipulate markets or mislead investors into making bad decisions. Organizations that perpetrate securities fraud may include brokerage firms, corporations, or investment banks. These entities often target unsophisticated investors who are unaware of the fraudulent activities taking place. In some cases, these organizations may even create false information about a company’s performance to entice investors into buying its stock. No matter who is behind it, securities fraud is illegal and should be reported immediately if suspected.

How to Fight Securities Fraud

Knowing your rights is key if you have been taken advantage of with securities fraud. You can file a complaint with the Securities and Exchange Commission (SEC) or FINRA and, in some cases, take legal action against the party responsible. Unfortunately, it’s uncommon for investors to be reimbursed by these organizations, and when they are, it tends to be just a small portion of their losses over a long period of time.

An experienced attorney can help you understand other options available to you to seek justice for your losses. Being a victim of securities fraud can be a very confusing and difficult experience, so having someone knowledgeable on your side can make all the difference in getting the outcome right for you.

Types of Securities Fraud

It’s vital to read every document provided during a financial transaction. Hidden fees and confusing language can increase the risk of securities fraud.

High-Yield Investment Frauds

Fraudulent investments that guarantee high returns but with little risk are referred to as high-yield investment frauds. These scams can involve different areas, such as securities, commodities, real estate, and other valuable investments. The crooks behind these schemes often use multiple methods to target potential investors, like posting on the internet, emails, social media platforms, or even person-to-person contact. They may also implement mass marketing tactics to get the attention of large numbers of people.

The best way to identify these types of fraud is by looking out for offers that seem “too good to be true.” If an offer promises high returns with minimal effort or risk involved, it is likely a scam. Before investing in any security or investment product, it is important to be aware of these types of scams and research. Check the credentials and background of anyone offering you an investment opportunity and ensure they are legitimate before investing any money.

Ponzi & Pyramid Schemes

Ponzi schemes are fraudulent investment operations that promise investors high returns with little or no risk. Named after Charles Ponzi, who famously swindled millions of dollars from investors in the 1920s, these schemes rely on the influx of new money to pay off earlier investors. In a Ponzi scheme, the underlying investments are usually entirely fictional, and rarely any actual physical asset or investment is involved.

The scheme works by offering high returns to early investors, encouraging more people to invest in the scheme. As more people invest, the con artist can use their funds to pay off earlier investors and keep up with promised returns. However, as the number of total investors grows and the supply of potential new investors dwindles, there is not enough money to pay off promised returns and cover those who try to cash out. Eventually, when the con artist can no longer keep up with payments, the Ponzi bubble bursts, and all remaining investors lose their entire investment in the fraud.

Advance Fee Schemes

Advance fee schemes are a type of securities fraud that promises investors a large sum of money in exchange for an upfront fee. These fees may be called “commissions,” “processing fees,” or something similar and are often required to be paid in cash, wire transfer, or even cryptocurrency.

The fraudulent organization will also ask the investor to provide personal information such as bank account numbers or social security numbers. Once the fee is paid, the fraudulent organization will often disappear, and the investor will never receive the promised money.

Cryptocurrency-Related Investments

Cryptocurrencies have become increasingly popular in the investing world in recent years, with Bitcoin leading the charge. The news has been filled with stories of people becoming “crypto millionaires” and the rise of coin exchanges and related investment products. As cryptocurrencies do not fall neatly into existing federal/state regulatory frameworks, promoters can easily take advantage of unsuspecting investors.

It is important to do your research before investing in cryptocurrencies or crypto-related investments. Make sure you understand how the product works and what risks are involved. Be aware of any red flags, such as promises of guaranteed returns or claims that sound too good to be true. There are select investment opportunities where you keep your funds in your account which is a safeguard from fraud. It is also a good idea to consult with a financial advisor before making any decisions about investing in cryptocurrencies or related products.

Social Media/Internet Investment Fraud

Social media and the internet have revolutionized the way people connect with one another. This has opened up a new world of opportunities for investment promoters to find potential investors. Through social networks, such as Facebook, Twitter, LinkedIn, and eHarmony, users can easily meet and interact with other users worldwide.

Unfortunately, this also means that con artists can infiltrate these social networks to gain credibility and trust from unsuspecting victims. By actively participating in a social network or community, the con artist can build relationships with group members and use this trust to convince them to invest their money in fraudulent schemes. Therefore, it is important for investors to be aware of these risks when using social media or investing online so they can protect themselves from becoming victims of fraud.

Real Estate Investment Fraud

Real estate investments can be a great way to make money, but they come with risks. Investors need to understand the potential pitfalls before getting involved in any real estate investment. In addition, state securities regulators caution investors about real estate investment seminars, often marketed as an alternative to more traditional retirement planning strategies involving stocks, bonds, and mutual funds. Attendees at these seminars may hear testimonials from people claiming to have doubled or tripled their income through seemingly simple real estate investments, but these claims may not be true.

Two popular investment pitches involve so-called “hard-money lending” and “property flipping.” Hard-money lending is a term used to refer to real estate investments financed through means other than traditional bank borrowing. This type of loan gets its name because it would be “hard to get” from a traditional lending source. Investors should do their due diligence when considering hard-money loans or property flipping as an investment option, as many potential pitfalls are associated with these types of investments.

Promissory Notes

Promissory notes are a type of debt instrument companies can use to raise capital or by individuals to borrow money. They are written promises to pay a specified sum of money at a stated time in the future or upon demand. They usually pay interest either periodically before maturity or at the time of maturity. In an environment of low-interest rates, the promise of high-interest promissory notes may tempt investors, especially seniors and others living on a fixed income.

Misconduct by an Investment Advisor

Examples of misconduct by an investment advisor or broker include recommending investments that generate high commissions for the advisor instead of being beneficial to the client, making unsuitable investments, or failing to diversify a portfolio. These actions can lead to significant losses for investors who trusted their advisors and brokers to make sound decisions on their behalf. Therefore, investors need to be aware of potential misconduct to protect themselves from becoming victims of this type of fraud.


If you think you’ve been a victim of securities fraud and have had major financial losses, it’s essential to consult an expert securities fraud attorney quickly.


How do I report securities fraud?

File a complaint with the Financial Industry Regulatory Authority (FINRA). File a complaint with the U.S. Securities & Exchange Commission (SEC). Contact an experienced securities fraud attorney.


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