Investment fraud can cause devastation for victims who lose their resources. Therefore, federal authorities are often quite assertive about prosecuting clear cases of investment fraud. In some cases, investment fraud is so egregious that the people committing it are well aware that their actions violate the law.
Ponzi schemes, for example, involve investment professionals intentionally misrepresenting the returns that their investments have generated for their clients and misappropriating investment funds from new clients to provide falsified returns to older clients. Such schemes tend to have very poor outcomes, particularly for those who invest later.
Sometimes, the actions that lead to accusations of investment fraud are not so overt. Pump-and-dump schemes are a common form of investment fraud. However, those accused of investment fraud may not even realize that their actions could lead to federal prosecution.
Pump-and-dump schemes often start online
Modern investors tend to do a lot of research using digital resources. They can track businesses, validate current stock prices and even communicate with other investors about their plans using a variety of different apps or websites. Unfortunately, some of the communication that occurs in the investment sector of the internet could lead to allegations of fraud eventually.
Pump-and-dump schemes usually begin with people who have already invested in a company providing inaccurate or exaggerated information about the company’s prospects online. They may claim that there is a merger in the works when no such business transaction is actually underway, for example.
Pump and dump schemes usually begin with the creation of a false sense of excitement about an investment online. By telling others that a particular stock is about to skyrocket, those who already hold stock can significantly increase the value of their investments.
As others scramble to acquire the stock that could soon produce returns according to online hype, the people orchestrating the pump-and-dump scheme can then sell their holdings at a significant profit. Pump-and-dump schemes often involve low-value stocks offered by companies that most people don’t even know exist.
Investment fraud that targets strangers online, not clients who trust a financial professional, could still lead to criminal charges. Understanding what types of conduct justify specific white-collar charges can help people avoid prosecution or respond effectively to allegations that they misled other investors.