Introduction

The rise of white-collar crime has left many victims traumatized, broke or affected by mental health disorders. Even though fraud, embezzlement or forgery are described as non-violent crimes, the financial loss suffered by victims is a basis for legal action and/or imprisonment. 

What should investors understand about fraud in the financial industry and what can they do if they fall victim to this crime?

Securities Or Investment Fraud

Securities fraud is known as stock fraud or investment fraud and is illegal. The practice of investment fraud is a deceptive act which encourages investors to make certain sale decisions based on false information, which often results in a loss to the investor. The misinformation and manipulation of a financial market can be done by an independent person such as a stockbroker, or brokerage firms or investment banks.

Often, securities fraud takes place behind the scenes of Ponzi schemes, pyramid schemes or insider trading. Ponzi schemes work on the premise of a fraudulent investment which uses a new investor’s money to profit the old or original investors in the scheme. 

Pyramid schemes emphasize the recruiting of new investors and their money is used to pay the initial investors just as in a Ponzi scheme. The pyramid scheme works by the top tiers gaining more money as a return as the tiers below them recruit more investors until the base of investors is so large the scheme collapses due to an inability to raise enough funds to pay every investor back. At this point, everyone loses their money. 

Insider trading in India is a little more complicated than elsewhere as insider trading is allowed up to a certain extent, providing there is no malice intended. India allows corporate insiders to trade within their company’s owned stock, but this activity must be disclosed to avoid non-public sensitive information. 

Legal Recourse

Insider trading in India can be legal or illegal as determined by SEBI (Securities Exchange Board of India) laws, which govern trading in the national stock or Bombay stock exchange. Insider trading is allowed if unpublished or information which has not been made public is not used in a fraudulent way. 

Victims of securities fraud have legal recourse and can often rely on lawyers who specialize in investment fraud. Specialized law firms such as the Silver Law Group work with investors to recover losses experienced due to securities and investment fraud. 

Support And Counselling For Victims

Victims of investment or securities fraud should seek professional counseling in both a personal and financial capacity. Seeking the help of a counselor, psychologist or mentor can be comforting and provide victims with a better perspective or handle on the situation. Most medical aid or community centers offer free counseling to victims of fraud. Speaking to a financial advisor will be the next step in trying to rebuild the financial loss incurred due to fraud. 

The psychological and emotional impact of investment or securities fraud on the victim should never be ignored or underestimated. A good support system in the form of colleagues, friends or family can go a long way to assist the victim to recover financially and emotionally.