Typical Forms of Investment Fraud

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Most people are in search of financial security. This means putting away some money or investing in different alternatives with guaranteed returns. When looking for an investment vehicle, you will ordinarily come across several options. Unfortunately, some are only out to defraud you of your hard-earned cash. It will, however, be quite hard for even the most vigilant investor to pick up on all the signs of a fraudulent investment. In most cases, investors only realize they have been deceived when investigators lift the lid on the goings-on in a company.

Few investors will, however, seek the services of a corporate fraud lawyer since they believe they have little or no hope. Even so, with excellent legal representation, you can seek equitable, exemplary or compensatory damages. If there exists no adequate legal solution, you can seek equitable remedies of reformation, specific performance, or rescission. The following are the common forms of investment fraud for which legal remedies might apply.

Pyramid Schemes

In these, fraudsters will claim that they can multiply your small investment for significant profits within a short time. They lure you in with promises of easy money. In reality, however, you only make money by getting more investors to sign up for the scheme. The people behind pyramid schemes often sell them as multi-level marketing ventures. The schemes nonetheless fall apart quickly when it becomes impossible to get new investors.

Ponzi Schemes

In this scheme, a fraudster will collect money from new depositors and use it to pay earlier investors. In reality, this money is not being invested or managed to generate profits as the investors purport. Like pyramid schemes, a Ponzi scheme needs a steady incoming cash stream to survive. Unlike the latter, however, you need not get other people to sign up to get a share of the ‘’profits’’. Ponzi schemes ordinarily collapse when an investor can no longer convince other people to sign up or if too many earlier-stage investors want to get their cash at the same time.


Here, a fraudster will deliberately buy low-priced shares in a thinly traded small company. He will then falsely drum up the interest of this stock while increasing the stock price. Believing you are investing in promising stock, you will buy the shares at exorbitant prices. The fraudster then dumps all his/her shares at this high price and disappears, leaving you with worthless shares. Though carried out from boiler rooms and through newsletters and fax in the past, pump-and-dump schemes are now often advertised via text messages and emails.

Advance Fee Fraud

When you fall victim to this scheme, you will be convinced that you can reverse an investment mistake that involves purchasing low-proceed stock. The con starts with a proposal to pay you top dollar for valueless stock. To access the deal, however, you are first required to pay some money in advance. In most cases, advance fee fraud targets victims of the pump-and-dump scheme.

Bring Them to Justice

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Most people choose to forget the above investment frauds swiftly. They thus do not want to engage in lengthy court battles where they will keep reliving their mistakes. Even so, with a good lawyer, the fraud case advances quickly, and the remedy will be worth your while.

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