Types of Fraud the SEC Will Investigate

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If you become aware of potential securities violations that are causing investors and the public to lose money, it is critical that you come forward and report your tip to the United States Securities and Exchange Commission (SEC). This way, the SEC can open up an investigation, if they haven’t yet, and put a stop to the fraudulent activities going on.

Not every tip is worth investigating, however. The SEC must consider whether they also have the Enforcement Division, based on the information you provide. Below, we outlined some of the most common types of fraud the SEC takes an interest in investigating so you can get an idea as to whether it’s in your best interest to come forward.

Insider Trading

Insider trading occurs when a broker, company employee, corporate shareholder, or anyone who has learned of confidential information that has not been made available to the public, uses this information to make a trade on the stock market. They often either gain from doing so, or avoid losing money.

Determining whether or not insider trading is illegal depends on one primary factor: did the person making the trade do so based on the confidential information they discovered?

If they did, they’ve committed fraud. If they made a trade without consideration of the information that wasn’t made public, they didn’t engage in insider trading. To prove that fraudulent activity occurred, the SEC must prove the intent of the person who made the trade.

Pyramid Schemes

The majority of people have at least heard of pyramid schemes and the damage they cause. They SEC investigates a potential pyramid scheme when a fraudster has created, often a fake, company that requires investors to recruit new investors.

The schemer then uses the funds brought in by those on the lower tier of the pyramid to pay off those on the higher tiers, until the pyramid falls apart. That occurs when there is a failure to continue to bring in new recruits. Those who couldn’t cash out before the pyramid fell apart lose out on their “investment”.

Embezzlement

Embezzlement is one of the most often seen types of fraud and occurs when a person who has been trusted to manage the assets, trusts and financial accounts of an investor take ownership of their funds.

By taking small amounts over a long period of time, embezzlement often goes unnoticed, until the investor begins to notice unexplainable losses in their accounts, questionable investments and missing money.

One way embezzlers end up discovered is when they make the mistake of transferring money from the accounts they are trusted with, into their own accounts, or other offshore accounts that the investor did not authorize. This leaves a money trail that points to the embezzler.

Short-Selling

Short-selling is another area of the financial industry where it isn’t always illegal to sell the stock. Short-selling occurs when a trader who has secured the authorization to borrow a stock sells the stock when the price is expected to drop. Then, the trader purchases the stock again for the reduced price, thus pocketing the difference.

There are two main instances where short-selling is illegal. One of which is if the trader did not have permission to borrow the stock in the first place, and two is if they find information indicating that the stock price was going to drop through a confidential source that hasn’t been made available to the public. This is also a form of insider trading.

Investment Fraud

Each of the aforementioned types of securities violations are forms of investment fraud. When anyone who claims to act in the best interests of their investor is deceptive in any of their dealings, they engaged in investment fraud.

One of the main purposes of the SEC is to reduce the amount of investment fraud taking place all over the world. For this reason, any instances of potential investment fraud is of particular interest to the SEC’s Enforcement Division.

Blow The Whistle On Securities Violations

Coming into information about fraudulent activities in your workplace, or anywhere for that matter, could end up a blessing in disguise for you if you choose to bring your tip to the SEC. If you meet all of the criteria, you could become an award winning whistleblower and contribute to the cessation of investment fraud and financial schemes.

Get in touch with an SEC whistleblower attorney today and set up a confidential tip assessment as soon as possible, so you can report insider trading to the SEC, and obtain a whistleblower award.