The term securities fraud refers to deceptive behavior involving stocks and investments.
A range of crimes qualify as securities fraud, including pyramid schemes and insider trading. Investors should understand the types of securities fraud and how to avoid them.
Fraud and investments
Securities fraud involves attempts to falsify or omit information regarding investments to manipulate investors and markets for gain. For example, in a pump-and-dump scheme, fraudsters use online communication platforms to encourage people to buy certain stocks so they can sell them at a higher price. Using and spreading confidential information to gain an advantage when trading stocks is also a form of fraud. In addition, securities fraud can include pyramid schemes that involve deceiving new investors to pay off prior investors.
Investors should be skeptical and thoroughly research any investment opportunities they encounter. High-pressure sales tactics and unsolicited requests for investment can be signs of fraudulent behavior. It is also advisable to practice strong cybersecurity and avoid sharing personal information online.
Impact of securities fraud
Deceiving and stealing from investors has a direct individual impact. Victims of white-collar crimes such as fraud can experience severe losses. Furthermore, attempts at stock price manipulation can undermine the market. Therefore, securities fraud is a federal crime and a felony. A person found guilty of securities fraud might have to pay large fines and serve several years in prison.
People who own or trade stocks and other securities should understand the various forms of fraud that impact the market and investments. Securities fraud is a serious crime with real consequences.