Securities Fraud Awareness & Prevention Tips

The nation's economy is increasingly dependent on the success and integrity of the securities and commodities markets. 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.

Types of Security Frauds:

  • 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

  • Do not believe everything you are told by the seller. Take the time to do your own research on the investment's potential.
  • Do not 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 will have a better chance of getting your money back if you do.

The Federal Trade Commission, the nation's consumer protection agency, collects complaints about companies, business practices, identity theft, and episodes of violence in the media. Please visit FTC site at https://www.ftccomplaintassistant.gov/ or call them at 1-877-FTC-HELP. For more tips on how to protect yourself from various fraud schemes, we invite you to visit our Fraudsection.