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22.11.2010 00:02
6 most common methods of fraud: to draw a good return on mutual fund with related structures and sell shares to the client at an inflated price, leaving the client illiquid securities in the portfolio, to sell junk bonds to the client, to earn a commission, hit "stop". Detail.

"Customers are designed to be left without a penny. It remains to quickly remove from them more money and look for new customers! "- Said the senior partner of the brokerage firm, which employed the protagonist of" Reminiscences of a Stock Operator ". And although this book Edwin Lefevre published in 1923, representatives of investment companies is still a lot of ways to make money on customers - not just legally, but in most cases with complete impunity. Forbes spoke with a trader of the management company and an employee of a broker and found the 6 most common methods of fraud.

Draw a good return on mutual fund with related structures

Regulators are tired of repeating that yield mutual funds in previous periods does not guarantee similar performance in future periods. But consumers in these statements are not paying attention, what and enjoy some company. Inflate the profitability of the mutual fund can be a simple scheme. Management company buys for its mutual fund shares "Daisies" (the name is not accidental - in all circuits used paper of the second and lower levels) in an affiliated broker or a bank at a lower price. On the market these securities are traded for 100 rubles. The company also buys them for 85, re-evaluating, and instantly shows the yield on the deal at 18%. And the affiliate bank or broker to conceal a loss of accountability, buys stake in the fund. And there is no loss, and raised income shareholders have the money.

Sell shares to the client at an inflated price

Many problems associated with conflict of interest, because the management company itself publicly traded and, therefore, can not sell to customers the best possible paper. Thus, the manager buys a stock trading account with "Daisies" and recommends buying them in their analytical reports, speaking of the great potential of growth.

During the first days after the release of the report, the manager "scatters" the value of securities by buying them for money all the same trading account, and often on the clients` money. Often, the manager makes it not alone, and agreeing with other investment companies. Seeing the rise in prices, the paper begin to buy and market investors. When the price takes off enough, Managing sells all its available paper "Daisies."

The cost of it after that just drops. If by the time fall in the price control does not manage to sell all the papers and on the part of the portfolio transaction closes with a loss, this loss is most often reflected on the customer`s account and not on account of the management company.

Leave a client illiquid securities in the portfolio

With the consent of the client manager buys shares in its share of "Daisies." They begin to grow. But the market not so much. Managing, understanding that growth will continue for a long time, he decides to cash in on clients` securities. He sells shares "Daisies" akin to the structure that holds them until the end of growth period. A client manager explains that he was not sure to further increase prices and would take profits in the conservative phase.

Sell junk bonds to the client

Managing, buying bonds for their clients, explain this need to create an airbag - it`s fixed-income instruments. But in a crisis, when defaults on corporate bonds have been so frequent, have a new opportunity for speculation and managers. Buy bonds "Daisies" for 40% of the nominal value and offers customers a highly promising for 50% of face value on the strategy to hold to maturity.

Managing earns its 10% of the cost of the paper in just a few minutes. In this case the client does not explain the risks to which the "Daisy" could default on bonds or postpone payments on it for several years.

Earn a commission

Brokers who earn commissions from the transactions of clients interested in maximizing the number of these transactions. Here loyal assistant broker - investment advisers who are not formally managing the account, only give advice to clients. The most common method they use is called "shaking".

This is when the first consultant gives advice to buy the paper (referring to the trading signals generated by the supposedly flawless proven robot), and then during the day revising its forecast. Salary investkonsultantov tied to the amount of commissions from transactions. So, for example, most brokerage houses the main strategies that the consultants recommend to their clients - intraday. After all, it assumes the maximum number of transactions.

Bring down the "feet"

Private investors and investment companies that buy the paper for 1-2 days and not sure that the next day the growth will continue, expose the so-called foot. This application to sell securities, which are automatically executed if the price for it reaches a certain level. These "feet" are visible to brokers through whom opened a trading account customers. So often in the opening exchanges, brokerage houses traders decide to "push through" paper. Why is this procedure so called? Traders choose an action "Daisies", which exposed most of the "stop".

Let`s say "stop" on display at 50 rubles. A paper is being traded in the market for 70 rubles. Traders buy stocks "Daisies" for 70 rubles. And then once they sell for 50 rubles. Foot collapse, brokers again are buying the same stocks, but for 50 rubles. After that the price immediately returned to their previous level - 70 rubles, and traders make on the deal of 20 rubles per share.

Author: Xenia Leonova, FORBES
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