Investment Fraud: The “Front Running” Scam

Font Running seems to be the most prolific type of investment fraud out there. Unfortunately, computer programs designed to stop front running have been manipulated to proliferate this practice of stock broker fraud. Front running is when a broker or brokerage firm commits investment fraud by using insider knowledge of when a company will be marketing the sale of a particular stock, and purchasing that stock ahead of the sale with the intent of selling the stock during the companies marketing campaign at an inflated market value.

Until the “.com wars” of 2000, investment fraud and front running was against the rules, which were strictly regulated. “Market making” (matching buyers to sellers) was done by human beings called “specialists” on The New York Stock Exchange floor, haggling over the price of stocks.  The specialist posts the “bid” and “ask” prices, manages “limit” orders, executes trades, and is responsible for managing the uninterrupted flow of orders. If there is a large shift in demand on the “buy” side or the “sell” side, the specialist steps in and sells or buys out of his own inventory to meet the demand, until the gap has narrowed.

While this gives the specialist the opportunity to commit investment fraud through front running,  the regulations of the SEC (Securities Exchange Commission) helped keep it in check. Now, Max Keiser, who claims to have invented one of the most widely used programs for doing the rigging involved in front running, says there is no such thing as “free market capitalism” and that the market has become thoroughly rigged by High Frequency Trading or “black box trading” (automated program trading). With High Frequency Trading (HFT), high-speed computers governed by complex algorithms (instructions to the computer) analyze data and transact orders in massive quantities at very high speeds. HFT allows the program trader to peek at major incoming orders and jump in front of them to skim profits off the top. [1]

Stockbroker fraud is everywhere so stay tuned! My next blog will discuss the ever popular ponzi scam.

If you feel you have been the victim of a stockbroker ripoff or need legal market advice, call the best Tampa lawyer with the experience necessary to give you the help you need. Call S. David Anton of Anton Legal Group!

S. David Anton is a member of Public Investors Arbitration Bar Association (PIABA) the preeminent national wide organization of attorneys who represent brokerage firm customers in disputes with the industry.  He is also a Certified Securities Arbitrator with the Financial Industry Regulatory Authority (FINRA), formerly NASD and resolves disputes between investors and stockbrokers, investment advisers and their firms. He has been practicing law since 1985 and representing brokerage firm customers since 1999.  He is a Tampa, Florida based attorney who can handle securities arbitration anywhere in the U.S.