- Messages
- 471
- Reputation
- 101
- Reaction score
- 268
- Points
- 63
- Jabber
- [email protected]
- Telegram
- cardervip
Numerous online forms of investment fraud mimic frauds previously committed over the phone or through direct mail. The Internet have provided new opportunities for defrauders including the ability to easily construct and develop online advertising, bulletin boards, online newsletters, e-mail, chat and Websites. For this reason, investment fraud over the Internet has increased and the Security Exchange Commission and the Federal Bureau of Investigation are aggressively prosecuting these crimes. In 2006, of all of the types of Internet fraud, the number of complaints received by the FBI for investment fraud equal 1.3% of over 200,000 such complaints. This article explains the most popular form of Internet fraud used by criminals in the United States.
The Federal Bureau of Investigation (“FBI”) now finds itself in a position of having to combat traditional fraud schemes that have been adapted to the Internet. These schemes, which generally prey on less sophisticated individuals, seek to exploit Internet users by adapting the same methodologies used in telemarketing and direct mail schemes. In response, the FBI has created a “watch list” which it posts regularly to its website and offers through an e-mail alert service that notifies the recipient when new schemes are detected and reported. The FBI has also entered into a partnership with the National White Collar Crime Center and has created the Internet Crime Complaint Center, known as IC3. This allows the FBI to track and classify various fraudulent activities occurring via the Internet as a means of deterrence and law enforcement.
What are the elements of a pump and dump scheme?
One common investment fraud committed on the Internet is the "pump and dump" scheme. In this scheme, the defrauder uses various means to get online investors to purchase stock of a shell corporation or thinly traded company, often a penny stock. Once the price of the stock is driven up due to greater artificially stimulated demand, the defrauders sell their stock, gaining profit. Thereafter, the unwitting investors lose their money when the stock price falls. Typically, the defrauders will pay stock promoters for their assistance in this fraud, in violation of the SEC (Security Exchange Commission) regulations. These stock promoters write favorably about the corporation on online investment Websites or other media. This information is then received favorably by potential investors, who assume that it is written by a professional offering an impartial opinion.
Can the elements of the pump and dump scheme be applied to short selling stock?
Similarly, in short-selling or scalping themes, a defrauder may use the opposite tactic to commence fraud. In short selling or "scalping" schemes, the defrauder puts out false information to devalue a particular company's stock. The defrauder then purchases the stock once the stock falls in value, only to sell it off when the stock returns to its correct price absent the presence of fraudulent information.
How do defrauders use a pyramid scheme to commence fraud?
Another type of fraud is the Internet pyramid scheme. Internet pyramid schemes are presented to a potential investor as opportunities for making money. The investor is prompted to make an initial investment and is promised large profits for recruiting others to the scheme. Pyramid schemes can involve chain letters or actual products. Unlike the other schemes discussed above, profit is not made directly from sale of a product or a security, but rather from the signing up of others to join into the scheme. Eventually, the supply of investors becomes depleted, and the scheme dissolves. A common form of pyramid scheme used on the Internet is the chain letter. In this scheme, a potential investor will be asked for a minimal investment to be returned many times over by sending out the chain letter to others. This type of fraud does not usually result in large financial losses, but can take up investor's time and space of their computer.
A ponzi scheme is a type of pyramid scheme, where potential investors are presented with the opportunity to invest in stock, hedge funds and other investment structures, with a potential high percentage return on their investment. Yet, instead of investing the investor's money, the operator uses it to pay dividends to the initial investors. For a short time, the investor will see a return on their money as more "investors" send their money to the operator. Although, as the supply of investors dries up, the operator of the scheme will flee with "investors" money in tow.
What are other scenarios of online investment fraud?
Another scheme involves offers of risk free or law risk investment opportunities. These offers can be sent to potential investors using the various Internet tools available to the defrauder including but not limited to email, advertisements and newsletters. More often then not, the investment offered f risk free, do not even exist.
The Federal Bureau of Investigation (“FBI”) now finds itself in a position of having to combat traditional fraud schemes that have been adapted to the Internet. These schemes, which generally prey on less sophisticated individuals, seek to exploit Internet users by adapting the same methodologies used in telemarketing and direct mail schemes. In response, the FBI has created a “watch list” which it posts regularly to its website and offers through an e-mail alert service that notifies the recipient when new schemes are detected and reported. The FBI has also entered into a partnership with the National White Collar Crime Center and has created the Internet Crime Complaint Center, known as IC3. This allows the FBI to track and classify various fraudulent activities occurring via the Internet as a means of deterrence and law enforcement.
What are the elements of a pump and dump scheme?
One common investment fraud committed on the Internet is the "pump and dump" scheme. In this scheme, the defrauder uses various means to get online investors to purchase stock of a shell corporation or thinly traded company, often a penny stock. Once the price of the stock is driven up due to greater artificially stimulated demand, the defrauders sell their stock, gaining profit. Thereafter, the unwitting investors lose their money when the stock price falls. Typically, the defrauders will pay stock promoters for their assistance in this fraud, in violation of the SEC (Security Exchange Commission) regulations. These stock promoters write favorably about the corporation on online investment Websites or other media. This information is then received favorably by potential investors, who assume that it is written by a professional offering an impartial opinion.
Can the elements of the pump and dump scheme be applied to short selling stock?
Similarly, in short-selling or scalping themes, a defrauder may use the opposite tactic to commence fraud. In short selling or "scalping" schemes, the defrauder puts out false information to devalue a particular company's stock. The defrauder then purchases the stock once the stock falls in value, only to sell it off when the stock returns to its correct price absent the presence of fraudulent information.
How do defrauders use a pyramid scheme to commence fraud?
Another type of fraud is the Internet pyramid scheme. Internet pyramid schemes are presented to a potential investor as opportunities for making money. The investor is prompted to make an initial investment and is promised large profits for recruiting others to the scheme. Pyramid schemes can involve chain letters or actual products. Unlike the other schemes discussed above, profit is not made directly from sale of a product or a security, but rather from the signing up of others to join into the scheme. Eventually, the supply of investors becomes depleted, and the scheme dissolves. A common form of pyramid scheme used on the Internet is the chain letter. In this scheme, a potential investor will be asked for a minimal investment to be returned many times over by sending out the chain letter to others. This type of fraud does not usually result in large financial losses, but can take up investor's time and space of their computer.
A ponzi scheme is a type of pyramid scheme, where potential investors are presented with the opportunity to invest in stock, hedge funds and other investment structures, with a potential high percentage return on their investment. Yet, instead of investing the investor's money, the operator uses it to pay dividends to the initial investors. For a short time, the investor will see a return on their money as more "investors" send their money to the operator. Although, as the supply of investors dries up, the operator of the scheme will flee with "investors" money in tow.
What are other scenarios of online investment fraud?
Another scheme involves offers of risk free or law risk investment opportunities. These offers can be sent to potential investors using the various Internet tools available to the defrauder including but not limited to email, advertisements and newsletters. More often then not, the investment offered f risk free, do not even exist.
