Stock market scams

I have been a stock broker and an investor for many years. I have also done compliance work. Real stock market fraud is rare (if you consider the percentage of legitimate trades). Further, I think most offenses are gray area, rather than intentional schemes. However, true well thought out schemes do exist. One thing that is common is online stock trading and online frauds connected with investments, especially with international investing.

Trading fraud schemes

“Pump and dump” fraud

This involves companies hyping a hot stock. Usually the stock is thinly traded, because it is easier to manipulate. They do this on forums and message boards new letters or wherever. Once the stock has risen, especially if its a low price stock and the leverage is high on a few point price movement, then the insiders sell or dump it. Someone is left holding the bag, that is owning usually worthless company.

“Pre-IPO investing” fraud

This includes companies that never go public, companies that are unregistered, and illegal offerings. Basically another version of hyping a stock that is worthless.

Micro cap stock market investing

Micro cap investing is real and legitimate. I have from time to time invested in micro cap stocks but better is a micro cap fund. Micro caps have high return and very high risk. Fraudsters will pump a micro cap penny stock or pink sheet stock that is thinly traded and again easy to manipulate. These stocks are cheap for a reason and have small capitalization for a reason.

Online stock market fraud

I know people personally who have been victims of this. Often they will create a site that looks exactly like a real site with real seals and official documentation. However, the url is slightly is different.

Another version of this is selling securities that have official seals etc that are false. I can not even begin to go into the number of ways you can be frauded online with regards, to the stock market. I would only invest online with very well reputations and of course good online security. I also would never invest in anything I herd as a rumor online or from an e-mail.

Stock market and investing scams involve lying

All schemes involve a lie. Either by the company owners about financial conditions of the company or reporting or by the salesmen. But a lie is a lie and it is illegal.

Penalties for scamming

Although 25 years is the maximum penalty, I think most people get a lot less, maybe 7 years in prison. But at that point the rest of your life is ruined as it should be as you ruined other people’s lives. SEC investment fraud unit , Sarbanes-Oxley is so high profile it is beyond me why people try to cheat people out of money, besides the pure ethics of it. Why try to fraud people out of money in the stock market and investment world when your real penalty could come in the next world, the world which has a maximum penalty of forever.