Online Securities Fraud

Securities fraud, in general terms, is the use of deceptive practices in the securities market. With the rise of the Internet, those who wish to engage in securities fraud have expanded into the world of email and websites, and have demonstrated a great deal of creativity and ingenuity in their efforts to cheat would-be investors out of their money. Don't feel secure just because you are an experienced investor. Many people with years of investment experience have been taken in by these scams.

The Fictitious Security

One particularly brazen scam involves the creation of an investment opportunity that exists nowhere but on the Internet, often with promises of extraordinary rates of return or "risk free" investment. The fake investment opportunity may have an associated website that looks very genuine, with photographs, documents, investor endorsements, and other evidence to suggest that the opportunity is real.

Searches of the Internet may reveal a wide range of other websites and newsgroup posts endorsing the investment. After investors are enticed to purchase shares or otherwise invest, the people behind the opportunity disappear. Investors then learn that all of the pictures and evidence they saw was fake.

Fake Stock Tips

In order to try to artificially inflate the value of stocks, often stocks with little or no real value. Most of the people taken in by the fake tips will suffer a loss. These tips are often distributed in the following manners:

  • Sending out hundreds of thousands of SPAM email messages that purport to provide inside information about the stock and how it is about to take off in value.

  • Distribution of email "investment newsletters" that purport to provide objective information about "investment opportunities"

  • Posting of fake investment advice and information in online investment forums, bulletin boards and chat rooms.

If enough people fall for the scam, the value of the touted stocks will rise, and the scammers will sell off their shares for a quick profit. This scam is commonly referred to as "pump and dump".

Copyright © 2014 Aaron Larson, All rights reserved. No portion of this article may be reproduced without the express written permission of the copyright holder. If you use a quotation, excerpt or paraphrase of this article, except as otherwise authorized in writing by the author of the article you must cite this article as a source for your work and include a link back to the original article from any online materials that incorporate or are derived from the content of this article.

This article was last reviewed or amended on May 8, 2018.