It became a problem of such scope that the Bush Administration announced what it described as an "aggressive agenda" against corporate fraud.
Dummy corporations may be created by fraudsters to create the illusion of being an existing corporation with a similar name.
These manipulators first purchase large quantities of stock, then artificially inflate the share price through false and misleading positive statements. The pump and dump is a form of microcap stock fraud.
In several cases, the monetary amounts of the fraud involved are in the billions of USD.
Boiler rooms or boiler houses are stock brokerages that put undue pressure on clients to trade using telesales, usually in pursuit of microcap fraud schemes.
In microcap fraud, stocks of small companies of under $250 million market capitalization are deceptively promoted, then sold to an unwary public.
This type of fraud has been estimated to cost investors $1–3 billion annually.
Securities fraud, also known as stock fraud and investment fraud, is a deceptive practice in the stock or commodities markets that induces investors to make purchase or sale decisions on the basis of false information, frequently resulting in losses, in violation of securities laws.
Securities fraud can also include outright theft from investors (embezzlement by stockbrokers), stock manipulation, misstatements on a public company's financial reports, and lying to corporate auditors.
Abusive short selling, including certain types of naked short selling, are also considered securities fraud because they can drive down stock prices.
In abusive naked short selling, stock is sold without being borrowed and without any intent to borrow.
The practice of spreading false information about stocks, to drive down their prices, is called "short and distort." During the takeover of Bear Stearns by J. Morgan Chase in March 2008, reports swirled that shorts were spreading rumors to drive down Bear Stearns' share price. Christopher Dodd, D-Conn., said this was more than rumors and said, "This is about collusion." A Ponzi scheme is an investment fund where withdrawals are financed by subsequent investors, rather than profit obtained through investment activities.