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Examples of securities fraud 

On Behalf of | Jun 14, 2024 | White Collar Crimes

Securities fraud is a very serious federal offense. Those who have been accused need to understand all of their defense options. This is a financial crime, but it can certainly be punished by more than just fines, and it could result in time behind bars.

That being said, securities fraud itself is an umbrella term that encompasses many different illegal activities. Below are a few examples to show how these may occur. 

Pyramid schemes

A pyramid scheme happens when initial investors are paid large returns, but the money for those payments is simply taken from newer investors. The investment itself doesn’t have any value, outside of just attracting more people to the scheme. When it falls apart, the newest investors all lose their money. 

A pump and dump scheme

A pump-and-dump scheme is when someone intentionally increases the value of a stock. This draws attention to that stock, so more investors get on board. Once they do, the initial investor – who advertised the stock as a good investment opportunity – then pulls their money back out. They essentially just manipulated the other investors and took their money.

Insider trading

Finally, insider trading is an example of securities fraud where people use non-public information to make trades. For instance, the CEO of a company tells an investor that the company is about to go bankrupt, so they sell their stocks in advance. Or the CEO tells the investor about an upcoming merger, allowing them to buy right before the price goes up. 

If you are facing allegations of securities fraud, you need to take them very seriously and it’s time to begin looking into your criminal defense options.