As has been stated, securities fraud can take shape in many forms, some more obvious than others. Below is a brief overview of some the most common types of securities fraud prosecuted by the federal government.

            Accounting Fraud – As the name would imply, this is a criminal scheme in which a company’s financials are exaggerated or made to look better than they really are in order to attract investors.  Like every other securities fraud type case, the essence of the crime is some form of misrepresentation or deceit.    

           High Yield Fraud – High yield fraud occurs when an investor receives promises a high rate of return with little to no risk, or in other words, investments that are “too good to be true.”  This type of securities fraud can involve securities, commodities, real estate, etc.). Many of these fraudulent activities often occur unsolicited, or without the victim approaching the perpetrator, but rather the other way around. This is different than a high-yield bond investment, which offers higher than investment-grade interest rates, which is completely legal.

            Churning – This is a crime in which a securities broker, motivated by a desire to earn excessive fees or commissions, convinces a client to engage in excessive trades.  In many of these types of cases, the “victim” will be an elderly person or someone unsophisticated in financial matters.    

            Ponzi & Pyramid Schemes – A “Ponzi” or pyramid scheme occurs when investment money from new victims is used to pay off money owed or promised to earlier victims. This scheme creates the appearance that the investment is sound and returns are being realized, when in reality investors are the ventures only source of funding.

            Insider Trading – Insider trading is not only one of the most common, but also one of the most publicized types of securities fraud. It occurs when someone with confidential information about a  company’s financial status uses that information to make decisions on whether or not to buy or sell the stock before that information is disclosed to the public.

            Third Party Misinformation – Often termed “pump and dump” schemes, occur when a third-party releases false information (misrepresentations) about a company, a particular industry, or about the stock market in general. In a typical “pump and dump” scheme a person will usually find a little-known company and buy large amounts of shares at a cheap price. The individual will then send out false positive information about that company in order to encourage others to purchase stock, thereby driving up the stock price. Once the price is high enough, the individual will then sell off his shares for a profit.

            Microcap Fraud – Microcap stock fraud involves “microcap” companies which are companies with a market capitalization of under $250 Million. Most stocks involving microcap companies are “penny stocks”, which are stocks that trade less than $5 per share, are not listed on a national exchange, as well as other criteria. Some types of microcap fraud include “chop stocks” which is when stocks are purchased for pennies and sold for dollars, providing brokers and promoters with massive profits.