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What Constitutes Investment Fraud?

Investment fraud involves the intentional use of deception to persuade investors to make financial decisions based on false information. Investment fraud schemes are typically characterized by offers of unregistered securities, complex strategies, overly-consistent returns, guaranteed returns, or low- or no-risk investments.

If you suspect that you are the victim of investment fraud, it is important to act quickly. The accomplished investment fraud lawyers at Colling Gilbert Wright have helped investors pursue justice for years. We understand the vast complexities of these difficult cases, and we are passionate about holding negligent investment entities accountable for their wrongdoing.

Investment fraud can take many forms, the most common of which are listed below.

Pyramid Schemes

A pyramid scheme promises big returns in a short time. Generally in these schemes, the emphasis is on recruiting new investors and there is no product actually being sold. Like Ponzi schemes, pyramid schemes require new investors to pay profits to earlier investors. However, if recruits stop joining, or if the scheme gets too big, the pyramid collapses and investors lose their money.

Pump-and-Dump Scams

In pump-and-dump schemes, scammers first use misleading or false statements to pump up the price of a company’s stock. Once the price skyrockets, the scammers dump their own shares for a profit. This typically sends stock prices plummeting and misled investors lose their money. These are often internet scams that urge investors to purchase stocks immediately based on fraudulent claims of “inside information” about rising stock prices.

Promissory Notes

Promissory notes are often legitimate instruments used by companies to raise money by taking out loans. Companies generally promise investors a high fixed return. But if promissory notes are sold to a large number of investors, the practice could be a scam. Warning signs that a promissory note could be a scam is when it is accompanied by terms like “insured,”  “guaranteed returns,” or risk-free.”

Prime Bank Schemes

In a prime bank scheme, investors are encouraged to buy prime bonds from overseas markets or banks. These scams frequently involve an offer to split the profits between you and the scammer. However, the bonds generally don’t exist. 

Pre-IPO Investment Scams

In a Pre-IPO investment scam, a scammer offers an investor the chance to purchase stock in a company before it goes public. This usually happens before a big-name tech or social media company like Twitter or Facebook holds its initial public offering (IPO).

Ponzi Schemes

Ponzi schemes occur when scammers collect funds from new investors to pay earlier investors off. While these schemes temporarily create a steady flow of returns, they ultimately collapse when scammers can no longer find enough new investors. When a Ponzi scheme collapses, investors generally lose the majority of their investments. Unlike pyramid schemes, Ponzi schemes do not usually require investors to recruit new investors.

Offshore Scams

Federal rules allow financial companies to sell unregistered securities to buyers outside the United States. In offshore scams, foreign scammers manipulate these rules and use them to sell securities illegally to U.S. investors. Once money is obtained through this type of scam, it is very difficult, and sometimes impossible, for law enforcement to pursue the wrongdoers.

Multi-Level Marketing

Although many multi-level-marketing companies are legitimate businesses, some are actually just scams. Investors buy into these companies through fees and buying their products. Investors are expected to resell the products and recruit others in order to make a profit. When profits come from product selling, the MLM is most likely legitimate. However, if profits are based on the number of new investors recruited, it is probably a pyramid scheme.

Microcap Fraud

Similar to a pump-and-dump scheme, microcap fraud usually involves heavy, unsolicited stock promotions. Scammers try to get investors to buy stock to raise its price so they can profit at the investor’s expense. Signs of this fraud include a sudden, unexplained rise in stock prices, businesses that have gone through a number of name changes, or penny stocks.

Internet and Social Media Fraud

While the internet and social media are valuable tools for learning more about companies and investments, they can also be used to scam victims into investment fraud.

High Yield Investment Programs

High Yield Investment Programs (HYIPs), are unregistered investments run by unregistered brokers or sellers. HYIPs promise high returns with little or no risk to investors. Some prime bank fraud also falls under this sales promise.

Binary Options Fraud

Binary options fraud depends on whether the price of an investment will fall below or rise above a certain price. Because of its all-or-nothing return, investors are vulnerable to losing a lot of money quickly.

Affinity Fraud

In affinity fraud, a specific community or group, such as military veterans, ethnic groups, or churches, is targeted. Scammers build trust by being, or pretending to be, a member of the same group. 

Advance Fee Fraud

In advance fee fraud, scammers ask investors to pay a fee upfront before a deal can go through. The fee may be described as a commission, a tax, or some other expense the investor will ultimately recoup. Advance fee scams often involve found money, lottery winnings, or investment offerings.

Contact Our Investment Fraud Lawyers Today

If you’ve been the victim of investment fraud, you deserve justice. Colling Gilbert Wright has helped many investors recover their financial losses. Our experienced investment fraud lawyers have the knowledge, skill, and resources necessary to help you recover your losses.

Call (800) 766-1000 today for a free consultation. We serve clients throughout the state of Florida and Nationwide.