Florida man charged with penny stock scheme

Miami readers might be surprised to learn that the Southern District of Florida has the second highest number of securities fraud investigations in the nation, trailing only Wall Street. Common deceptions perpetrated on unsuspecting investors include Ponzi schemes, penny-stock companies and market manipulation schemes.

Today's story involves a penny-stock scheme. This type of investment deception -- sometimes called a pump and dump scheme -- often involves an individual misrepresenting the value of an owned security, in an attempt to sell the investment at a profit to investors. Once the owner unloads all of his or her overvalued shares, however, the security's value usually crashes.

According to a press release from the U.S. Attorney's Office, a Florida man was captured in the act on several recordings made by undercover FBI agents. The man apparently lured investors to invest in two overvalued companies where he was a named officer. The man is accused of using bribes to enlist the help of a stockbroker and a pension fund fiduciary to create the unsubstantiated hype about a company called VHGI. If convicted, the man might face up to five years in prison. At least one of the man's accomplices has already plead guilty.

Analysts are unsure why securities fraud is such a problem in South Florida. Prosecutors saw an increase in Ponzi schemes during the housing boom, and retirees in Florida might also be perceived as easier targets by fraudulent brokers or firms. Although potential investors may believe that they have discovered an exciting new opportunity, a quick consultation with a securities fraud attorney might save heartache and financial losses down the road.

bizjournals.com, "Coral Springs businessman pleads guilty to stock fraud," April 16, 2013

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