5 Most Common Types of Fraud Identified by FINRA

The Financial Industry Regulatory Authority (FINRA) issued a new Investor Alert called Avoiding Investment Scams which described common types of fraud. Below are the 5 most common types of fraud identified by FINRA:

  1. Pyramid Schemes: Fraudsters claim that they can take a small investment and turn it into large profits in a short amount of time. However, participants make money solely by recruiting new participants and the schemes quickly fall apart when new participants are no longer available. Pyramid schemes may appear to be legitimate multi-level marketing programs.
    2. Ponzi Schemes: Fraudsters recruit new investors and use their funds to pay earlier-stage investors, instead of investing the funds as promised. This type of scam is named after Charles Ponzi, who in the 1920s tricked thousands of investors to place their funds in a price arbitrage scheme involving postage stamps. Ponzi schemes are similar to pyramid schemes with the exception that in ponzi scheme investors do not have to recruit new investors to earn a share of profits. Ponzi Schemes usually collapse when new investors cannot be attracted or when too many investors try to cash out.
    3. Pump-and-Dump: Fraudsters buy shares of a low priced stock from an unknown company and then trump up interest in the stock to increase the stock’s price. Investors are tricked into believing they are getting a good deal and create buying demand at high prices. At this point the fraudsters sell their shares at the high prices and disappear, leaving the unsuspecting investors with worthless stock. Previously, these schemes were conducted by cold callers, facsimiles or online newsletters, but now the most common medium is through spam emails or text messages.
    4. Advance Fee Fraud: The scams starts by an offer placed to buy a worthless stock for a high price, but to facilitate the deal the investor must send a fee for the service. Once the fee is sent, the investor never hears from the fraudster again.
    5. Offshore Scams: These scams include any of the above mentioned scams and may also involve Regulation S. Offshore scams can be difficult for U.S. law enforcement agencies to investigate or rectify.

If you and have suffered investment losses, please contact the Hanley Law to explore your legal options. The Hanley Law is dedicated to helping investors who have been victims of securities fraud. If you have lost money as a result of securities fraud, you may be able to recover your financial losses. Contact us today toll free at (239) 649-0050 for a free initial consultation.

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