International Investment and Financial Market Crime

Investment and financial market fraud typically refers to activities such as fraudulent investment schemes, share market manipulation and exploitation of financial securities. This is a sophisticated type of fraud committed by serious and organised crime groups, who rely on technology, identity crime and the use of professional facilitators to conduct their operations.

In their 2017 report Serious Financial Crime in Australia, the Australian Criminal Intelligence Commission (ACIC) outlines the ways in which investment and financial market fraud are conducted, how they are facilitated, and explores why Australia is a target for international organised crime groups.

 

Fraudulent investment schemes

Fraudulent investment schemes involve pressuring victims into investing funds with promises of high financial returns in a short period of time. However, victims end up losing most or all of their invested funds.

Key investment fraud types include:

  • Boiler-room fraud: also known as cold-calling investment fraud, this involves the unsolicited contacting of potential investors, who are deliberately given false or misleading information to entice them to buy, sell or retain securities or other investments.
  • Ponzi schemes: investment fraud where, unknown to the investors, there is no legitimate investment and returns are simply paid to investors out of money from subsequent investors.

A range of other fraudulent investment schemes exist such as sports betting and gambling systems, and foreign exchange trading.

These types of crime can be committed from anywhere in the world by phone or internet, utilising technology that can hide both the location and identity of the perpetrators.

Sophisticated organised crime groups use a range of tactics to make their schemes seem legitimate including aggressive telemarketing campaigns, glossy brochures and professional-looking websites. Phony online accounts may even be set up so that investors can see their balances rise, with contact being cut off when they request to withdraw money.

 

Share market manipulation

This crime type involves the manipulation of the legitimate share market to artificially raise or lower the price of shares for financial benefit.

‘Pump and dump’ schemes involve the use of false and misleading information to generate investor trading interest to artificially ‘pump’ up the price of a company’s shares (typically a fraudulent or low value company).

As more people invest, the share price increases and the scammers then sell or ‘dump’ shares at the peak of the price rise, giving them a considerable profit while causing the value of the shares to fall, leaving investors with shares that are either worthless or valued at a fraction of the purchase price.

 

Exploitation of financial securities

Criminal entities exploit financial securities to make illegal profits, or to launder the proceeds of crime.

Illicit funds can be laundered in a range of ways including:

  • Investing in legitimate share markets – this provides a level of anonymity, particularly when trading through professional brokers.
  • Off-market share transfers – using fraudulent identities to transfer shares into false names, without the use of a stockbroker.

 

Why is Australia a target for investment and financial fraud?

Australia is an attractive target for both domestic and overseas-based crime groups involved in investment and financial market fraud because of its comparatively stable economy, Australian investors’ high subscription to share purchases, the perceived lower risk of detection and substantial illicit profits to be made.

The most recent reporting by the Australian Bureau of Statistics shows that approximately 1.6 million Australians experience personal fraud each year, at a combined personal cost of $3 billion.

 

What is the threat to Australia?

Investment and financial market fraud can distort Australia’s markets by diverting legitimate capital to illicit investments. This activity may reduce investor confidence in the integrity of these markets, and as a result reduce willingness to invest in legitimate entities. There are also important social implications, with fraud victims experiencing financial hardship, mental illness or in extreme cases, suicide.

 

Conclusion

The ACIC predicts that Australia will continue to be a target for domestic and international investment and financial market fraud activities, and that it will be increasingly important for financial regulators and other bodies to collaborate to effectively prevent, detect and combat this type of fraud in Australia.

Nyman Gibson Miralis provide expert defence in complex financial and white collar crime cases, often involving multiple jurisdictions. Contact us if you require assistance.