3 common forms of securities fraud

On Behalf of | Jul 25, 2018 | Firm News

The stock market is mystifying to many average consumers. While the appeal of investing might draw some in, inexperience might make them vulnerable. Many novice investors rely on advice and guidance from experts, but not all experts have investors’ best interests at heart. According to the FBI, investors should be wary of investments that seem too good to be true.

Deceiving or stealing from investors is considered securities fraud, which is often a felony criminal offense. If you work in stocks and investing, you should be aware of the following three forms of securities fraud and be sure that you avoid them so you do not encounter any legal trouble: 

1. Penny stocks

Penny stocks are a common culprit in securities fraud. Many investors are lured by the promise of stocks costing only a penny and led to believe that profit is inevitable. Unfortunately, because the value of these stocks is so low, they can be easily manipulated by promoters who keep the prices low and prevent liquidity. This ensures that investors will never profit—no matter how big their investment is.

2. Unlicensed agents

While some forms of security fraud simply involve manipulation, others rely on outright scamming. This is true of agents who present themselves as legitimate financial professionals but are, in fact, unlicensed. There are plenty of financial agents claiming to be experts in their field and offering financial guidance to investors. If you do not have the requisite licenses to do so, though, you are committing securities fraud.

3. Stock brokers

While some financial agents might commit fraud by being unlicensed, others might commit fraud even though they are actually licensed. Stock brokers often have unchecked reign over clients’ finances, and some take advantage of this freedom by charging illicit fees and engaging in unauthorized trades. Clients should always audit the transactions their stock brokers complete with their funds. 

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