In a typical scheme, a brokerage firm will use an army of cold-calling brokers to pump up the price of a stock. The brokers will use high-pressure sales tactics, often lying about the company. Brokers may ignore customer sell orders to restrict the supply of the stock and pump up its price. Later, when the price is pumped high enough, insiders will dump their shares at huge profits. More stock for sale on the market causes the stock value to plummet and wipes out regular investors.
Regulators say if an investment sounds too good to be true, then it probably is.
Greed overshadows good sense in many of these cases. But, the high risks don't give brokers or firms a license to commit fraud, he said. An investor should complain if his or her broker makes misrepresentations or omits information that would influence an investment decision. An example of an omission would be if a broker failed to tell an investor that a company had been in bankruptcy. Also, unauthorized trades in your brokerage account should be reported to state and federal authorities.