3 investment scenarios that could lead to criminal charges

Investment is a way for people to take the resources they already have and increase them. It is also a way for businesses and those with business concepts to secure funding to start a company or expand operations.

Investment can also be a way for people to trick and manipulate others to deprive them of their financial resources. Certain conduct can lead to allegations of investment fraud and serious criminal charges. Anyone accused of one of the three types of investment fraud below can potentially face white-collar criminal charges.

Ponzi schemes

A Ponzi scheme is perhaps one of the best-known types of investment fraud, in part because it is so devastating for victims. Someone conducting a Ponzi scheme claims to have made a large amount of money investing funds for clients. However, the returns that they advertise are actually funds provided by other clients who want them to manage their investments. Those who invest early in Ponzi schemes might receive returns well above the current average returns reported by other investment professionals. Those who invest late are at risk of losing everything that they contribute toward a Ponzi scheme.

Fraudulent misrepresentation

Executives and entrepreneurs eager to convince investors to contribute toward an idea may exaggerate the company’s performance or greatly overstate the likelihood of profit. Investors may then make decisions because of that fraudulent misrepresentation that results in lower returns or far more risk for their invested assets than they initially anticipated.

Pump-and-dump schemes

A pump-and-dump scheme is also an attempt to coerce individuals into investing in a particular business or stock. Such schemes often involve creating an artificially inflated reputation for a stock or brand. The internet has made pump-and-dump schemes more common, as people can create numerous fraudulent accounts to spread misinformation to prospective investors. Pump-and-dump schemes typically culminate with the parties who misrepresent the stock selling all of their holdings during times of high demand knowing full well that the people buying up the stock are likely to lose what they invested. The price of the stock typically plummets when people realize that the company isn’t worth what the online hype indicated.

There are scenarios in which truly innocent investment advice or well-intentioned business conduct looks like fraud to disappointed investors or regulatory authorities. Anyone facing white-collar criminal charges related to investment fraud may need to respond assertively to avoid incarceration and financial penalties that could forever alter the course of their lives. Reviewing financial records and state evidence with a skilled legal team is often a key element of preparing a defense strategy when accused of investment fraud.