The Securities And Exchange Commission (SEC) is the primary regulator of stocks in the United States and litigates against fraud and other violations of the US securities laws.
During the year ended March 31, 2008 they opened two hundred twenty-two new cases, which is an over thirty percent increase in new cases from the prior year.
Almost half of the cases were of the three following types: accounting fraud, insider trading and sale of unregistered securities.
Accounting fraud, sometimes called "cooking the books", is one in which the reporting company alters its books and reports materially different results from its actual results.
Insider trading is simply trading a stock with information not known to the public.
Sale of unregistered securities is when securities are being sold to the pubic without registration with the SEC.
Most of the insider trading cases is smaller capitalization companies with a new product, investments in real estate or a new scheme.
It is interesting that the number of new insider trading cases this year (12% of total cases) has more then doubled the number in the previous year.
The biggest increase in new cases (8% of all cases) was for bribery, many of which related to the UN's Food for Oil Program in the Middle East and larger companies doing business in China.
The cases involving Hedge funds and Ponzi schemes continued to decrease from 32% of all cases in the prior year to 11% this year.
This does not mean these frauds do not exist or you should not be wary of them.
The cases being investigated by the SEC are influenced by many things including: complaints filed by investors, the needs of the investing public, congress, public opinion, and most importantly, the decisions of the SEC's staff.
An investor must be wary of fraud when making an investment.
The SEC and state regulatory bodies are primarily reactive rather then proactive.
Although you may read about the prosecution of high publicity cases, such as Enron, WorldCom, Health South, most cases are not prosecuted and many are never discovered.
Even when securities fraud is prosecuted, the sentences are short and the recovery of money for investors is small.
Investors need to be wary of these types of frauds and not rely on the regulators to protect them.
Some of the warning signs, which I outlined in my 2007 article mentioned above, are worth repeating: 1.
securities which are not registered, 2.
investment funds (including hedge funds) which are not registered, 3.
investments with high returns with little risk, 4.
secret trading schemes 5.
offshore investment funds, 6.
small-cap stocks touted on the Internet or by faxes, 7.
investment advisors who want trading control of your portfolio without the proper oversight, 8.
investment advisors who advise you to put all of your portfolio in their can't-lose investment, and 9.
returns which are just too good to be true.
Remember, it is your job to be wary of fraud.
The regulators certainly help in deterring fraud, but will not protect you against losing your invested funds.
During the year ended March 31, 2008 they opened two hundred twenty-two new cases, which is an over thirty percent increase in new cases from the prior year.
Almost half of the cases were of the three following types: accounting fraud, insider trading and sale of unregistered securities.
Accounting fraud, sometimes called "cooking the books", is one in which the reporting company alters its books and reports materially different results from its actual results.
Insider trading is simply trading a stock with information not known to the public.
Sale of unregistered securities is when securities are being sold to the pubic without registration with the SEC.
Most of the insider trading cases is smaller capitalization companies with a new product, investments in real estate or a new scheme.
It is interesting that the number of new insider trading cases this year (12% of total cases) has more then doubled the number in the previous year.
The biggest increase in new cases (8% of all cases) was for bribery, many of which related to the UN's Food for Oil Program in the Middle East and larger companies doing business in China.
The cases involving Hedge funds and Ponzi schemes continued to decrease from 32% of all cases in the prior year to 11% this year.
This does not mean these frauds do not exist or you should not be wary of them.
The cases being investigated by the SEC are influenced by many things including: complaints filed by investors, the needs of the investing public, congress, public opinion, and most importantly, the decisions of the SEC's staff.
An investor must be wary of fraud when making an investment.
The SEC and state regulatory bodies are primarily reactive rather then proactive.
Although you may read about the prosecution of high publicity cases, such as Enron, WorldCom, Health South, most cases are not prosecuted and many are never discovered.
Even when securities fraud is prosecuted, the sentences are short and the recovery of money for investors is small.
Investors need to be wary of these types of frauds and not rely on the regulators to protect them.
Some of the warning signs, which I outlined in my 2007 article mentioned above, are worth repeating: 1.
securities which are not registered, 2.
investment funds (including hedge funds) which are not registered, 3.
investments with high returns with little risk, 4.
secret trading schemes 5.
offshore investment funds, 6.
small-cap stocks touted on the Internet or by faxes, 7.
investment advisors who want trading control of your portfolio without the proper oversight, 8.
investment advisors who advise you to put all of your portfolio in their can't-lose investment, and 9.
returns which are just too good to be true.
Remember, it is your job to be wary of fraud.
The regulators certainly help in deterring fraud, but will not protect you against losing your invested funds.
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