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Investment Fraud

How does the stock market work?
Stock markets are a form of centralized exchange where investors buy and sell ownership (stocks) of various companies. Most stock markets worldwide are highly regulated and involve legal, nationally registered, and regulated brokers to facilitate the transfer of stock from a seller to a buyer.
Examples of regulated stock exchanges are the US-based NYSE (New York Stock Exchange) and the NASDAQ (National Association of Securities Dealers Automated Quotations). Our ability to access the stock market has never been more effortless, and the barriers to entry continue to fall every year.

But this ease of access is not without its dangers. We are all susceptible to different types of investment scams in the investment and stock world, so it is incumbent on us to do our due diligence and protect ourselves and our money from becoming victims of stock fraud and stock scams.


Is the stock market rigged?
One of the biggest questions and, for many, beliefs about the stock market is that it is rigged. Is it? The US’s stock markets are regulated by various government and non-government entities such as the SEC (Securities and Exchange Commission) and FINRA (Financial Industry Regulatory Authority). Both the SEC and FINRA have overlapping legal responsibilities that monitor the stock exchanges and the various brokers that facilitate the buying and selling of stocks. However, that doesn’t mean we can avoid all fraud and scams.
Current and past companies intentionally deceive individual investors and/or participate in illegal accounting and business practices, such as ENRON and Valeant Pharmaceuticals. Some fraudulent individuals create ‘too good to be true’ advertisements that result in Ponzi schemes – the worst actor in history being Bernie Madoff.
You even have regulated online stock brokers that do not practice their fiduciary responsibilities on behalf of their clients – a most recent example would be Robinhood during the early 2022 GameStop debacle. While there are obvious risks in the stock market and plenty of people looking to take advantage of you, the overwhelming and vast majority of brokers and exchanges operate in a legitimate, ethical and legal way.

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