Investments allow people to turn their capital into an ongoing source of revenue and/or to multiply their savings. Investment strategies are important for those who want to retire comfortably or provide resources for future generations.
Those operating investment funds or running businesses that take outside investment could end up accused of investment fraud when their clients suffer major losses. Investment fraud can involve a variety of different types of behavior, including the three relatively common forms of financial misconduct briefly discussed below.
1. Ponzi schemes
Attracting clients to an investment fund can be a difficult task. Sometimes, financial professionals overstate or outright falsify the returns that they produce for clients. Ponzi schemes involve using the funds from new clients to provide returns for prior investors. Ponzi schemes often lead to a total loss of the invested capital for the defrauded individuals.
2. Pyramid schemes
Pyramid schemes manipulate people looking for investment or employment opportunities. They can buy into a business, but what they earn usually depends on the sales that they make. They often receive encouragement to recruit others and may receive a portion of their sales or a bonus for each person who signs up under them.
3. Pump-and-dump schemes
Those hoping to generate a rapid return on an investment might make false statements about the prospects for a company online. Once there is enough excitement to generate demand for the stock, the parties misrepresenting the opportunity sell their holdings at a profit. Those who buy in during times of high demand face major losses.
People harmed by investment fraud may have the right to take legal action. Pursuing investment litigation can lead to compensation for funds lost due to fraudulent conduct.