security and investment fraud

Securities fraud, also known as stock fraud and investment fraud, is a practice that induces investors to make purchase or sale decisions on the basis of false information, frequently resulting in losses, in violation of the securities laws.

Generally speaking, securities fraud consists of deceptive practices in the stock and commodity markets, and occurs when investors are enticed to part with their money based on untrue statements.[1]

Securities fraud includes outright theft from investors and misstatements on a public company's financial reports. The term also encompasses a wide range of other actions, including insider trading, front running and other illegal acts on the trading floor of a stock or commodity exchange.[2][3]

According to the FBI, securities fraud includes false information on a company's financial statement and Securities and Exchange Commission(SEC) filings; lying to corporate auditors; insider trading; stock manipulation schemes, and embezzlement by stockbrokers.[4Corporate fraud
Corporate misconduct

Fraud by high level corporate officials became a subject of wide national attention during the early 2000s, as exemplified by corporate officer misconduct at Enron. It became a problem of such scope that the Bush Administration announced what it described as an "aggressive agenda" against corporate fraud.[5] Less widely publicized manifestations continue, such as the securities fraud conviction of Charles E. Johnson Jr., founder of PurchasePro in May 2008.[6] FBI Director Robert Mueller predicted in April 2008 that corporate fraud cases will increase because of thesubprime mortgage crisis.[7]
[edit]Dummy corporations

Dummy corporations may be created by fraudsters to create the illusion of being an existing corporation with a similar name. Fraudsters then sell securities in the dummy corporation by misleading the investor into thinking that they are buying shares in the real corporation.
[edit]Internet fraud

According to enforcement officials of the Securities and Exchange Commission, criminals engage in pump-and-dump schemes, in which false and/or fraudulent information is disseminated in chat rooms, forums, internet boards and via email (spamming), with the purpose of causing a dramatic price increase in thinly traded stocks or stocks of shell companies (the "pump").

When the price reaches a certain level, criminals immediately sell off their holdings of those stocks (the "dump"), realizing substantial profits before the stock price falls back to its usual low level. Any buyers of the stock who are unaware of the fraud become victims once the price falls.[8]

The SEC says that Internet fraud resides in several forms:
Online investment newsletters that offer seemingly unbiased information free of charge about featured companies or recommending "stock picks of the month." They are sometimes used for fraud.[9]
Bulletin boards that often contain fraudulent messages by hucksters.[10]
E-Mail spams from perpetrators of fraud.[11]