Understanding and Combating Investment Fraud

Investment fraud is a significant problem in America. Estimates vary, but a conservative one is that about 10 percent of the investors will be victimized by investment fraud at some point in their lives. Further, many baby boomers are entering retirement with significant assets, and enforcement actions by financial regulators indicate that investors can be vulnerable to fraud at key ‘wealth events’ in their lives, such as when they face a decision about what to do with money arising from the sale of a house, an inheritance, or an IRA rollover. Protecting these assets—for baby boomers and younger generations who face key wealth events—will be important to ensure the financial well-being and retirement security of millions of Americans. This chapter reviews the dynamics of investment fraud victimization, explains how fraudsters use social influence tactics to defraud their victims, and describes current investor protection efforts.