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Microcap fraud includes pump and dump schemes involving boiler rooms and scams on the Internet.
The term encompasses a wide range of other actions, including insider trading, front running and other illegal acts on the trading floor of a stock or commodity exchange.
Fraud by high level corporate officials became a subject of wide national attention during the early 2000s, as exemplified by corporate officer misconduct at Enron.
Securities fraud, also known as stock fraud and investment fraud, is a deceptive practice in the stock or commodities markets that induces investors to make purchase or sale decisions on the basis of false information, frequently resulting in losses, in violation of securities laws.
Securities fraud can also include outright theft from investors (embezzlement by stockbrokers), stock manipulation, misstatements on a public company's financial reports, and lying to corporate auditors.
This is generally legal, but there are certain reporting requirements.
Fraudsters then sell securities in the dummy corporation by misleading the investor into thinking that they are buying shares in the real corporation..
According to enforcement officials of the Securities and Exchange Commission, criminals engage in pump-and-dump schemes, in which false and/or fraudulent information is disseminated in chat rooms, forums, internet boards and via email (spamming), with the purpose of causing a dramatic price increase in thinly traded stocks or stocks of shell companies (the "pump").
It became a problem of such scope that the Bush Administration announced what it described as an "aggressive agenda" against corporate fraud.
Dummy corporations may be created by fraudsters to create the illusion of being an existing corporation with a similar name.
In microcap fraud, stocks of small companies of under 0 million market capitalization are deceptively promoted, then sold to an unwary public.This type of fraud has been estimated to cost investors –3 billion annually.