Marketing Fraud: What it is, How it Works, Types

Amilcar has 10 years of FinTech, blockchain, and crypto startup experience and advises financial institutions, governments, regulators, and startups.

What Is Marketing Fraud?

Marketing fraud is an illegal practice that makes false or misleading claims for financial gain. This includes exaggerating product or service qualities, selling imitations as genuine articles, or hiding side effects or potential harms.

The goal of marketing fraud is to solicit money or items of little or no value from individuals. One aspect of marketing fraud is promising monetary gain, investment returns, or other rewards. False advertising is another type of marketing fraud.

Key Takeaways

• Marketing fraud involves illegal use of false or misleading promotional statements to defraud customers or make unethical gains.
• Consumers should note that if a marketing claim sounds too good to be true, it probably is.
• Some well-known types of marketing fraud include bait and switch schemes, high-yield investment fraud, and mass marketing fraud.

Understanding Marketing Fraud

Marketing fraud is one of the oldest types of fraud. Consumers can protect themselves by remembering that if something sounds too good to be true, it probably is. Marketing fraud is regulated by the Federal Trade Commission (FTC) in the United States.

The internet is fertile ground for marketing fraud due to anonymity and spam email messages. Social media marketing fraud is also a serious issue, with perpetrators sometimes living on different continents than their victims.

Types of Marketing Fraud

Marketing fraud can take many forms. Bait and switch was once common, where a store advertised a discounted item but had few or none available. Stores are now required to have a minimum quantity of goods available at sale prices.

For investors, the most dangerous type of marketing fraud involves false claims about past performance or guarantees of safety. In some cases, there may be a reasonable explanation for seemingly impossible claims.

Marketing fraud and mass marketing fraud are related but have differences. Marketing fraud can occur in any medium and need not reach a large audience. Mass marketing fraud uses mass media to spread fraudulent messages, often via the internet.