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An example of this type of fraud is when individuals will contact potential investors and attempt to induce them into investing in a new, unknown company, by making false claims about the company.
Another common type of offering fraud is a Ponzi scheme, where investors are paid returns from their own money or from the money invested by subsequent investors, rather than from any actual profit earned. The operator of the scheme induces new investors by paying unusually consistent or abnormally high returns to older investors.
Pyramid schemes are also an example of offering fraud in which an individual or several individuals recruit investors, promising those investors large returns for recruiting other investors rather than through any real investment. At each level, the number of investors increases, creating a “pyramid.” The small group of initial investors at the top requires a larger base of later investors to fund the earlier investors. The pyramid will ultimately collapse when not enough new investors are available to recruit and pay earlier investors. Pyramid schemes can appear in many forms, and are sometimes disguised as multi-level marketing companies which claim to sell a product or service, but actually only generate money through the recruiting of new members.
Offering fraud may also occur online, with fraudsters utilizing websites or social media to approach large numbers of potential investors with misinformation or false promises of guaranteed returns. In recent years, fraudsters have also harnessed blockchain technology, initial coin offering, and cryptocurrency to commit offering fraud.