Licensing is required to sell or provide advice on investments, and myriad actions are prohibited including pump-and-dump stock trading, pyramid and Ponzi investment schemes, financial statement fraud, and fraud involving unregulated investment products.
A violation of laws intended to protect investors can result in charges of investment fraud. Federal and state charges for consumer or investment fraud can lead to a lengthy prison sentence, a seizure and forfeiture of your assets, loss of a broker’s or other professional license, and other penalties.
You may face criminal prosecution as well as civil litigation for your role in investment fraud and you should ensure you have an experienced investment fraud attorney representing you if you are accused of investment scams or fraudulent investment schemes.
Types of Fraudulent Investment Schemes
You can be charged with investment fraud for involvement in a variety of types of fraudulent or investment schemes including:
Pyramid schemes: In FTC vs. Koscot Interplanetary, the Federal Trade Commission defined a pyramid scheme to include any scheme where a person pays money for the right to sell a product or service, but receives compensation for recruiting others to sell rather than for the actual sale of the product to an end user.
Market manipulations: Making false and misleading statements to artificially inflate the price of a stock or to cause the price of a stock to drop.
Advance fee fraud: Advance fee fraud involves requesting payments up front before an investment deal can go through.
High yield investment fraud: Promising unrealistically high returns at little or no risk to investors through the purchase of unregistered investments run by unlicensed individuals. The Internet is commonly used to advertise
Ponzi schemes: Investment schemes where existing investors are paid with funds obtained from new investors instead of with legitimate investment earnings.
The U.S. Securities and Exchange Commission provides a comprehensive list of the types of investment fraud schemes that federal and state regulators may investigate. Additional types of investment fraud can include affinity fraud, microcap fraud, and fraud involving promissory notes.
In many situations, defendants are charged with investment fraud because the government incorrectly classifies a legitimate multilevel marketing program as a type of pyramid scheme or because of a misunderstanding regarding whether something is considered an investment.
An investment fraud attorney can provide representation when you are under investigation for any fraudulent investment schemes.
Criminal Charges for Fraudulent Investment Schemes
In New York, the Investor Protection Bureau facilitates enforcement of the Martin Act. The Martin Act is found in New York General Business Law Article 23-A and covers “all deceitful practices contrary to the plain rules of common honesty.” The Act gives broad power to the New York Attorney General to choose between filing civil and criminal charges, to subpoena documents, and to conduct investigations and ask questions while those who are subpoenaed have no right to counsel or right against self-incrimination. Prosecutors taking action under the Martin Act must show that misstatements or omissions occurred but are not required to prove that a transaction took place or that anyone was a victim of fraud.
The power vested in the New York attorney general by the Martin Act is unprecedented and has been used extensively in recent years to pursue cases involving alleged financial fraud.