Ponzi Schemes
It is illegal for an investment to be offered where the source of the returns come from the investor’s own money. The operators of a Ponzi schemes promise high returns, pretending there is some business basis, but merely pay some of the original investors with new investors money and skim off the major portion for their own use.
You will rarely find a Ponzi scheme running a legitimate business. The later investors are the most injured victims. A Ponzi scheme can also be a situation where a business sells one product to many investors each believing they were the sole owners.
Pyramid Scheme
Investors are offered to buy a membership, upfront in cash, in a pyramid shaped organization with the objective of finding others to pay to join the pyramid. The pyramid operators promise payment from selling stock or obtaining a loan. There is no effort To secure the loan or sell stock and the investors lose their membership fee.
Misrepresentations
Promoters offer a legitimate investment but misrepresents important facts or hide information in order to sell large quantities of the security.
Omissions
Promoters fail to disclose important negative information about the investment.
High Yield Investments (HYIP)
Investors are offered high yield from an investment that is purported to be backed by banks, the FDIC or the U.S. Treasury. Some have been set up outside the U.S. to avoid regulation.
Misappropriation
Promoters sell interests in a company and proceed to misappropriate the money for their own purposes ultimately causing the failure of the business.
Nigerian Investments
Individuals from foreign countries, mostly from Nigeria, claim they would have access to large amounts of money, but need funds to get through the legal process. They have very colorful stories regarding why they can get the funds. In return for the help they agree to pay huge fees. By merely giving these people access to your bank account or paying a fee there will be an incredible payment. These are completely fraudulent and have bilked investors out of millions of dollars.
Stockbrokerage Churning
There are stockbrokers that promote very active trading in an investment account causing substantial commissions to be charged. When these investments are unsuitable for the investor and the amount of trading leads to substantial losses, the investor may be a victim of “churning”. In many states this is considered theft.
Stockbrokerage “Pump and Dump” Schemes
Stockbrokers and their firms that aggressively promote a stock “pumping” and then quickly sell (dumping) the stock to give the original investors a profit, injure the later investors at the expense of the original investors. This is considered theft in many states.