![]() |
Financial Markets For The Rest Of Us An Easy Guide To Money, Bonds, Futures, Stocks, Options, And Mutual Funds |
Page 251 innovation from a company, inflated earnings, or just plain claims of a sure bet that the stock is about to explode in price. As investors begin to buy up shares, the stock price rises. By the time the investors figure out the scam, the scammers are usually long gone, having sold their own shares at inflated prices. The bait and switch scam works by presenting the investors with a so-called great opportunity to invest in a company. Only the investment turns out to be in another worthless company, and as usual, by the time the investors discover the trick the scammers have skipped town leaving the investors with worthless shares. Another kind of scam, perpetrated mostly by brokers, is churning. In this kind of scam, the investors are encouraged to get in and out of many positions during the period of the scam. This may not be in the best interest of the investors but they may find themselves unable or unwilling to dispute with their brokers. By the time the scam is over, the broker has made a healthy profit from all the commissions incurred with every buy and sell. Commissions on a single trade may not seem like much but they can quickly add up to a hefty sum as investors are taken from one trade into another. Remember that brokers make money from the commissions they charge from each trade. Sometimes illegal activities slip past the regulators but many times the perpetrators are caught and dealt with accordingly. Unfortunately even with the criminals caught, conned investors may never collect any money. By that time most of their money has either been spent or has been transferred elsewhere hidden from reach. While the SEC and other regulators may spend a part of their time investigating illegal activities, they are involved with rule-making as well: rules such as margin requirements, earnings release requirements, and circuit-breakers. … |
Table of Contents |