Understanding the Types of Stock Fraud

We all know that stock fraud, also known as securities fraud, deals with deceiving people for money, but there are actually numerous types of stock fraud, all just as equally bad as the next. Bernie Madoff, Martha Stewart, and the fine folks over at Enron are all serving (or served) time for different charges of stock fraud. There are so many forms but we'll just talk about the ones you tend to hear about on the news all the time.

You can thank Enron for making corporate fraud popular in the 2000s. Corporate fraud is simply any type of fraud committed by large corporations and their high level executives. Corporate fraud is complex and has a large negative effect on employees, entire communities, investors, lenders, and financial markets.

With the age of the Internet comes computer and Internet crimes. Internet fraud refers to the use of the Internet to conduct fraudulent business in schemes. This can occur in chat rooms, on websites, or through e-mail. The amount of schemes done over the Internet are practically innumerable. Some examples include the selling of nonexistent items, phishing, work-at-home scams, and investment schemes.

Insider trading has been going on way before Martha Stewart or the movie Wall Street. This is when an "insider" or informant in the company gives someone non-public information and trades stock based on that information. There is a legal form of insider trading which is when a person who works for a company buys and sells stock within the company.

Accounting fraud is when a company lies about its revenue or misdirects funds. Many companies will make it seem that they are worth much more than they really are. Accounting fraud has been nicknamed "creative accounting" because the company learns how to hide or misrepresent their earnings -- think of Broadway show The Producers.

Microcap stock fraud relates to small businesses, those with a market capitalization under $250 million. Stocks are sold fraudulently to the public through any number of different stock fraud schemes, such as pump and dump schemes, chop stocks, and dump and dilute schemes.

Unfortunately, a growth in the United States' markets has also led to an increase in stock fraud. Securities fraud is also becoming more complex as these criminals think of new scams and schemes. The Internet has also led to a huge surge in fraud since it is so much easier to find potential victims. It is often hard to recover the money gained from fraud because criminals have become quite good at hiding the money.

As technology continues to grow, I'm sure these white collar crimes will too. New scams will surface and more will become the innocent victim in these greedy crimes.

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