What Is Investment Fraud?

Investment fraud is any scheme or deception relating to investments that affect a person or company.

Investment fraud includes:

  • illegal insider trading
  • fraudulent manipulation of the Stock Market
  • prime bank investment schemes

The term "insider trading" can refer to legal or illegal trades. Insider trading is legal when corporate insiders—officers, directors, and key employees—buy and sell shares of their company. The United States Securities and Exchanges Commissions (SEC) keep a record of all trades conducted by corporate insiders.

Insider trading, however, becomes illegal when corporate insiders violate their company’s confidentiality and secretly share or sell private information to an outsider. The outsider will use the information not available to the public to buy or sell shares of the company to make a decent amount of profit. Illegal insider trading often gets pinpointed as the cause for the higher cost of capital for securities issuers, thus lowering overall economic growth.

Fraudulent manipulation of the Stock Market occurs mainly when telemarketers or spammers use persuasive techniques to paint pretty pictures of often-unprofitable investments over the phone or through unsolicited emails. Most of these fraudsters add legitimacy to their pitches by referring to investment counselors and using professionally designed brochures to pitch the investment.

Other types of Stock Market fraud include wash-trading, match-trading, and false prospectus. Wash trading happens when an investor simultaneously buys and sells shares of the same company through two different brokers. Wash trading is done to increase the activity of a stock in hopes of producing the impression that something big is coming.

Match trading, is similar to wash trading, but usually a computer is used to pair-up shares of the same value to buy and sell to increase stock activity. At the end of each fiscal year, companies produce a prospectus for prospective buyers summarizing the company’s goals, assets, debts, and financial risks to help buyers decide whether or not they should invest in a company. Sometimes companies produce false prospectus misrepresenting risks or losses to influence potential shareholders to invest.


Prime bank investment scheme is another type of investment fraud. Prime is a generic term used to describe legitimate financial institutions that issue investments. These schemes often claim false affiliations with organizations like the International Chamber of Commerce (ICC) and International Monetary Fund (IMF) to deceive investors. Offenders using this scheme trick prospective investors to believe that they’re participating in an innovative investment program. Offenders might request investors to sign papers agreeing not to disclose their identities, or any of the transactions made through the programs.

How Can I Spot an Investment Scheme?

Some of the characteristics of these investment programs include:

  • using legal-looking documents and financial jargon to influence the buyer that the investments are credible and profitable
  • promising high unrealistic returns in a short time of period
  • shipping the money to “offshore secrecy” so investors can avoid paying taxes on “guaranteed” returns
  • asking investors to promote the innovative investment programs or pitches to their friends and family

If you spot an investment fraud or scheme, alert your local securities regulatory authorities or contact your local police and ask to speak to the Fraud Department.


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In 2003, more than 10 million Americans fell victim to identity theft.

Identity theft costs business and individuals $53 billion dollars annually

In 2003, Americans spent 300 million hours resolving issues related to identity theft.

70% of all identity theft cases are perpetrated by a co-worker or employee of an affiliated business.