The Top 5 Types of Securities Fraud to Avoid

Securities fraud is one of the biggest dangers that new or even very experienced investors can ever come across. With a changing financial landscape and emerging types of threats, all investors need to be aware of the most glaring types of securities fraud to watch out for.

A computer hacker in a darkened room

Emerging Threats in Securities Fraud

The Covid-19 pandemic has exposed a lot of vulnerabilities in financial infrastructure. This has led to some revelations by national governments and big financial institutions, some of which have yielded breakthrough efforts in asset tracing and recovery. However, you don’t ever want to be in a position where you need to be dealing with a national law enforcement agency to get your investment back.

To ensure you are making safe investments, it’s helpful to be aware of some of the primary emerging frauds that we have seen in just the past year or two.

Types of Securities Fraud to Avoid

Investment scam artists

These are fraudsters who will pose as unlicensed agents, often making big promises and usually insisting that you need to make an investment right away to guarantee a good return. This is a sign that you’re not dealing with a legitimate broker.

A credit card being presented

Advance fees

Stay away from any investment offer that tacks on bizarre upfront costs. An increasingly common form of fraud that skyrocketed in 2020 is offered to join in the development and sale of new products. Investors were asked to pay for shipping fees, only to see the products never arrive, as they never actually existed in the first place.

Offshore investments

Although there have been big improvements in the global regulatory landscape, any investment you make that goes into an overseas bank account or foreign company is probably not going to be recovered by a US regulator. If it turns out that you have been scammed, you are going to have to deal with the authorities of that country. If that means you need to get on the phone with the financial intelligence unit of the Cayman Islands, you can kiss that investment goodbye forever.

Ponzi schemes

Ponzi schemes might seem super 2000s, but this remains a huge threat to investors everywhere. Oftentimes, Ponzi schemes are successful due to the personal charisma and reassurance of a single broker or hedge fund manager. Similar to the Madoff case, if it turns out that your broker is a sociopath who has been re-routing all of your “investments” into yachts in the Bahamas, you’ve got a problem. Don’t believe a broker who tells you your investment is growing. Get the data yourself. And even then, cross-reference and double-check.

Internet offers

This represents the single largest growing type of securities fraud emerging since the start of the Covid-19 pandemic. Internet investment scams tend to target more vulnerable populations, particularly elderly people who are not terribly discerning when it comes to a website that a 40-year old investor can instantly recognize as fake. Nevertheless, criminal online tactics have grown more cunning and sophisticated as the pandemic has evolved, meaning investors too need to be more discriminating when it comes to buying into anything they see online.

Protecting your Assets and Securing your Investments

Whether it is an online offer that seems a bit fishy or a call from a new broker that sounds too good to be true, it always pays off to make sure you have multiple sources, including ones you know and trust, that can confirm a deal is legitimate before you enter into anything.

A computer fraud concept

Part of this always means knowing when to spot a clear fraud.

The main red flags indicating security fraud of any degree to be wary of include promises of quick returns on your investment or brand new investment schemes in projects or companies you have never heard of. Steer clear of ads on websites or via email that contain grammar errors or spelling mistakes and always avoid investments accompanying demands for upfront payment.

Bottom Line

When in doubt, check with government regulators and enforcement agencies, either for reporting suspicious activity or checking to see if something is legitimate.

Investors affected by securities fraud can also contact a securities litigation lawyer.


This article is for information and educational purposes only and does not form a recommendation to invest or otherwise. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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