Final answer:
The investment fraud characterized by misrepresentation leading to inflated stock prices and investors profiting from selling at market peaks is typically referred to as a Ponzi scheme or pyramid scheme.
Step-by-step explanation:
A form of investment fraud characterized by misrepresentation that drives stock prices up with investors selling at the top of the market is known as a Ponzi scheme or pyramid scheme. This kind of scheme often involves speculation, where investors may purchase stocks based on the belief that prices will continue to rise, without fundamental support from the underlying company's performance.
In the 1920s, such speculation was rampant, with investors enamored by the quick riches to be made in the stock market and other ventures like the Florida land boom. Many bought stocks with borrowed money, an act known as buying "on margin", and relied on continually rising prices to make a profit. However, when new investors couldn't keep up with the demand, the market eventually collapsed, as was the case with the 1929 stock market crash and later financial crises.
Fraudulent schemes have appeared throughout history, notably with the case of Bernard Madoff, who orchestrated a massive Ponzi scheme, defrauding investors of billions. These schemes prey on the optimism and greed of investors, ultimately leading to significant financial loss when they inevitably collapse.