How Can Our Broker Misconduct Attorneys Help with Investment Fraud?

What Are Common Types of Investment Fraud and How Can Our Broker Misconduct Attorneys Help?

Every day, there are financial scammers out there looking to steal money from unsuspecting investors. Some of these fraudsters are registered brokers using the legitimacy of their profession and the brokerage firms they are employed by to hide their schemes while targeting customers.

If you are someone whose financial advisor defrauded you in some type of investment fraud, our skilled broker misconduct attorneys at Shepherd Smith Edwards and Kantas ( may be able to help you pursue damages against the broker-dealer, which should have detected there were red flags and protected you from sustaining significant investment losses.

Examples of Four Common Types of Investment Scams That May Lead To Investor Losses 

Ponzi Scams: In this type of scheme, newer investors’ funds are used to make payments (the supposed “returns,” “redemptions,” or “interest”) to earlier investors. This allows the scheme to keep going while fooling all of the victims into thinking that their investments are generating income. In reality, much less or no returns are being made at all. Ponzi scams will inevitably fail when newer investors stop joining or too many redemptions are sought that the fraudster runs out of money to keep “paying” earlier investors.

While people often associate Ponzi scams with big names, like the multi-billion dollar Madoff Ponzi scam—money manager Bernie Madoff defrauded celebrities, retirees, and retail investors alike—there are brokers who have been able to run their own Ponzi schemes because their brokerage firms failed to properly supervise them. Or, because of due diligence failures, a financial advisor may have ignorantly involved clients in someone else’s Ponzi scam. These acts of broker misconduct and negligence may make it possible for investors who were harmed to pursue damages through Financial Industry Regulatory Authority (FINRA) arbitration.

Pump and Dump Fraud: In this type of scam, a stock’s price is artificially raised through misrepresentations, omissions, or even false statements made to get people to invest. This inflates—“pumps” up —the stock’s value. Once the demand for the stock hits critical mass, the fraudster will go on to sell their shares of the stock, basically “dumping” them at a profit. It is then that they will stop marketing the stock, which will cause its price to drop. This leaves the investors who bought the stock when its price was inflated with an investment that is now of a significantly lesser value than what they paid.

Like with Ponzi scams, there are brokers who have been known to get involved in pump-and-dump scams, either on purpose or unknowingly because they breached their fiduciary duty to customers by not conducting the necessary due diligence and recommending what proved to be bad investments.

Promissory Note Schemes: Promissory notes, which a company may issue to raise funds, are a legitimate kind of investment. However, there are those who may try to sell bogus promissory notes in an attempt to make money. Such promissory note scams may even tout up to 12% in yearly interest when, often, this may simply be a ruse to persuade investors to get involved in a fictitious or overly valued company.

That said, even legitimate promissory notes may not be a suitable investment for every kind of customer. If your broker recommended promissory notes but failed to apprise you of the risks and you lost a significant amount of money, you may be able to file a FINRA lawsuit for damages.

Binary Options Fraud: Binary options are speculative, high-risk investments. They involve predicting how a commodity, asset, or index price will fluctuate over a short period of time, which can be hard to assess correctly. Should the fluctuation go beyond a certain price within that set period, the investor gets their money back in addition to a premium. Should the fluctuation go the opposite way, their entire investment may be lost. At no time does the investor own the specified asset or have the right to purchase or sell it. They merely have the contractual right to receive payment from the company if terms are fulfilled.

It is not uncommon for binary options fraudsters to find reasons not to process redemption requests even if trades were successful for an investor. Some “companies” engaging in binary options scams may even be located abroad and can be hard to go after. This is why it is important to determine whether brokerage firm negligence was a factor. Did your financial advisor fail to look out for your best interests or neglect to provide you with the duty of care you were owed when they promoted binary options to you? Is this a suitable investment given your risk tolerance level and financial goals?

How Can Our Knowledgeable Investment Fraud Law Firm Help You?

For over three decades, Shepherd Smith Edwards and Kantas ( have been fighting for investors in FINRA arbitration, litigation, and mediation. We have represented retail customers, retirees, high-net-worth individual investors, and institutional investors in going after the brokerage firms and financial advisors responsible for their investment losses. A number of these losses involved pump and dump scam, Ponzi schemes, binary options fraud, and promissory note fraud.

Proving broker misconduct or negligence can be extremely challenging, which is why you need to work with experienced investor losses attorneys like us who have recovered many millions of dollars for our clients. Arguing your securities fraud claim before a panel of FINRA arbitrators is not something that you want to do alone, especially when your brokerage firm will likely have its own legal team fighting for them.

To schedule your free, no-obligation case assessment with Shepherd Smith Edwards and Kantas, call (800) 259-9010 today.


Contact Information