Swindling the Investor: A Look into Securities Fraud

Editor’s note: This article is an excerpt from the Association’s Fraud Examiners Manual, Third Edition, Vol. 1. It is not meant to be a substitute for the study of the entire manual. In this issue, the article covers the discussion on “Securities Fraud,” pages 1.1501 to 1.1518.  

Black’s Law Dictionary defines securities as, “Stocks, bonds, notes, convertible debenture, warrants, or other documents that represent a share in a company or a debt owed by a company.” The reference also provides a method for determining whether an investment is a security:

Test for a “security” is whether the scheme involves an investment of money in a common enterprise with profits to come solely from the efforts of others so that whenever an investor relinquishes control over his funds and submits their control to another for the purpose and hopeful expectation of deriving profits therefrom he is in fact investing his funds in a security.