Overview

Ponzi Scheme: A Ponzi scheme is an investment fraud that involves using funds from new investors to pay returns to earlier investors. The fraudster typically promises high returns and uses a portion of the new investments to create the appearance of legitimate profits. Ponzi schemes eventually collapse when there are not enough new investors to sustain the payments. SEC

Pump and Dump: In a pump and dump scheme, fraudsters artificially inflate the price of a stock by spreading positive and misleading information. They then sell their shares at the inflated prices, causing the stock to plummet and leaving other investors with losses. SEC

Internet and Social Media Fraud: With the widespread use of the internet and social media, fraudsters have adapted their schemes to exploit online platforms. This can include fake investment opportunities, bogus stock recommendations, or fraudulent crowdfunding campaigns. SEC

Microcap Fraud: Microcap stocks, also known as penny stocks, are low-priced stocks with a small market capitalization. Fraudsters may manipulate microcap stocks by spreading false information, creating hype, or engaging in deceptive trading practices to artificially inflate the stock prices before selling their shares. SEC

Affinity Fraud: Affinity fraud refers to fraudsters targeting members of a specific group or community based on a shared affiliation, such as religious, ethnic, or professional ties. The fraudsters exploit the trust and sense of camaraderie within the group to gain victims’ confidence and convince them to invest. Examples include:

• Religious Affinity Fraud: Fraudsters pose as members of a particular religious group or use religious language and references to lure in fellow believers, promising investments aligned with their religious values.
• Ethnic Affinity Fraud: Fraudsters target specific ethnic communities, leveraging cultural ties and exploiting language barriers to gain trust and convince individuals to invest in fraudulent schemes.
• Professional Affinity Fraud: Fraudsters exploit professional networks, such as associations or industry groups, by posing as successful professionals or insiders with exclusive investment opportunities that are not available to the general public. SEC

Dishonest Practices: Dishonest practices encompass a wide range of deceptive activities that can harm investors. These practices may involve misrepresenting or withholding information, manipulating prices, or engaging in unethical conduct. Examples include:

• Front-Running: When a broker or trader executes orders on a security for their own account before filling customer orders, taking advantage of advance knowledge of pending orders to profit from price movements.
• Late Trading: Illegally placing trades in mutual funds after the market closes but receiving the current day’s price, allowing the trader to take advantage of after-hours news or events. 
• Marking the Close: Manipulating the closing price of a security by entering trades at or near the close of the market to benefit existing positions or options contracts.
• Abusive Short Selling: Engaging in illegal short selling practices, such as spreading false information to drive down a stock’s price or failing to deliver securities sold short within the required timeframe. SEC 

Insider Trading: Insider trading involves trading securities based on material, non-public information about a company. This information is typically obtained by insiders, such as corporate executives or employees, who use it to gain an unfair advantage in the market. Insider trading is illegal unless the information is properly disclosed and traded upon. (GPT) SEC Insider Trading Amendments

Churning: Churning occurs when a broker excessively trades securities in a customer’s account to generate commissions for themselves. The excessive trading is detrimental to the customer and serves the broker’s financial interests rather than the customer’s investment goals. (GPT) SEC Churning Alert

Fraudulent Offerings: Fraudulent offerings involve the sale of securities through false or misleading statements. This can include misrepresenting the financial health of a company, failing to disclose important information, or making false promises about potential returns. (GPT) SEC Fraudulent offerings case

High-Yield Investment Programs (HYIPs): HYIPs promise unusually high returns on investments but often turn out to be fraudulent. They rely on attracting new investors to pay returns to existing investors. HYIPs may use various tactics to create an appearance of legitimacy, but they typically collapse, resulting in significant losses for participants. (GPT) SEC Investor Alert