In 2010, federal authorities launched a securities fraud task force targeting various businesses involved in fleecing South Florida residents of their savings. A U.S. attorney estimated that investors of all kinds have lost millions of dollars in penny stock deals, market manipulation schemes and Ponzi scams.
Penny stock schemes involve what is known as "pump and dump." The company sends out viral marketing messages to get unwitting investors to buy the stock in volume, driving up the price artificially. In turn, the individuals behind the scheme sell their stock, stop the promotion, causing the price of the stock to plummet, and leaving many stuck with now worthless stock.
Once such operator was the president of a corporation that develops advanced wound-care products. The now former president is accused of using kickbacks to players in the scheme. The SEC alleges that the president timed press releases with fraudulent stock purchases in an attempt to create an appearance that the increase in activity was stimulated by positive news.
A Ponzi scheme is a simple but effective fraud. An individual uses different techniques to convince people to invest their money with them. The individual then turns around and steals the money to use for their own personal gain instead of investing it while convincing investors that their money is creating returns.
A recent Ponzi scheme involved an individual who posed as foreign currency speculator. He rented out a $2 million condo in Key Biscayne to give the impression he was extremely successful. The man promised returns of anywhere from 30 percent to 200 percent on trades processed through his company. The indictment alleges that the man used social relationships to get victims to invest with him, but never made any investments on their behalf. Instead, he spent the victims' savings on himself and others.
Source: Miami Herald, "Feds target South Florida securities fraud, from penny stocks to Ponzi schemes," Jay Weaver, June 5, 2012