How To Report Investment Fraud

Photo of office clerk

Investment fraud or stock fraud is a term synonymous with securities fraud. It is an illegal practice where investors purchase or sell investments in commodity or stock markets based on false information. The practice violates securities laws, ultimately results in major losses for companies, and can directly affect the US economy.

To better understand why you should report investment fraud, you need to know what investment fraud is.  There are many other types of fraudulent acts like mail fraud, mortgage fraud, and insurance fraud; but the common forms of investment scams that fall under investment fraud or securities fraud are the following:

  • Corporate fraud is the most common form of investment fraud, and it involves top level corporate officers like the well known Enron case.
  • In insider trading, corporate insiders trade the corporation's stocks or other securities. The traders may include directors, key employees, officers, or shareholders that own corporate shares of over ten percent. Insider trading becomes illegal when the basis for trading is information not given out to the public but sourced by the insider through misappropriation or from information accessible as part of his duties with the company.
  • The majority of the cases reported and handled by the FBI involve accountant fraud. Here, corporate executives were involved in self-dealing and various accounting schemes aimed at deceiving auditors, analysts and investors regarding the real financial state of a corporation. A corporation’s share price is artificially inflated to encourage the public to invest, but the financial data presented in the reports that were used as reference for a positive performance were manipulated. Cases like these involve billions of $US worth of losses.
  • Internet fraud is an investment fraud where offenders engage in a scheme called “pump and dump”. Internet boards, chat rooms, spam emails and forums, are used to disseminate false information to “pump” or increase the value of poorly traded or shell company stocks. Once the stock prices reach a good profit level, the criminals immediately sell or “dump” their stock holdings before the stock price goes back to its actual low value. The investors who are unaware and who bought the stocks at its false high value incur losses once the price falls back to its actual price level.
  • Microcap fraud involves the fraudulent sale to the public of stocks owned by small companies with a market capitalization value below $250 million. Microcap fraud usually uses other forms like pump and dump schemes, boiler rooms and Internet scams as well.
  • Boiler rooms use telesales to push stock brokerage clients to trade, with the intent to use microcap fraud schemes.
  • Mutual fund fraud involves mutual fund firms and major brokerages who manipulate market timing and do late trading as an investment scam.
  • Short selling abuses bring down stock prices and can be considered a form of securities fraud. Naked short selling becomes abusive when stocks are sold with no intent to borrow or without the stock being actually borrowed.
  • Another investment scam is called a Ponzi scheme. This fraud happens when there are no actual profits earned, but a company operates by using the company funds or the money of new investors to pay the returns of previous investors. In this scheme, new investors are enticed with a guarantee of unbelievable high returns on their investments within a short-term.

All forms of investment fraud involve the dissemination of false information in the financial statements and Securities and Exchange Commission (SEC) reports filed by a company. There is intent to lie to auditors, manipulate stock values, and embezzle stockholders. These fraudulent acts not only cause investors to experience large financial losses, but it can cause the loss of investor confidence and potentially cause irreparable damage to the economy of the U.S. and the world.

Anyone who is aware of such investment scams is encouraged to file a complaint at the SEC. You can consult a lawyer or attorney before filing a complaint. Here's how to report to the SEC:

  1. Complete and electronically file a complaint using the SEC’s online forms.
  2. Send a tip regarding a possible violation of a securities law by sending an email directly to [email protected]
  3. Forward to [email protected], any spam mail received related to an investment scam.
  4. Write and send a letter addressed to the SEC Complaint Center located at 100 F Street NE, Washington, D.C. 20549-0213; or send a fax to 703-813-6965.

Make sure the following critical information is included for the complaint to be immediately evaluated:

  • Your name, mailing and email addresses, and contact numbers.
  • The name, mailing and email addresses, telephone numbers, and if there is one, the website address of the individual or company you mentioned in the complaint.
  • If the complaint or tip is regarding a securities sales person, include the details of when, why, and how your adviser or broker scammed or defrauded you.

Reporting and filing a complaint about a mail fraud, mortgage fraud, insurance fraud, or investment fraud, not only helps guard the country’s economy. It also protects you and other investors from continuously being defrauded by brokers or embezzlers who are the only ones who gain from these investment scams.


Share this article!

Follow us!

Find more helpful articles: