Investment Fraud FAQs

What are Some of the Common Signs of Investment Fraud?
Classic Investment Fraud Indicators

Each circumstance is its unique situation. However, there are some common signs to note indicating fraudulent activities going on with your investment:

  1. You're requested to pay in cash.
  2. The broker or brokerage firm acts exceptionally aggressively.
  3. The broker or brokerage firm contacts you unsolicited.
  4. You are assured of incredibly high returns on investments.
  5. The investment is only an option for a concise window of time.

Not all of these signs can be termed fraudulent. However, consulting a securities lawyer is ideal. They should be taken seriously and researched thoroughly before putting your money into the hands of a broker or brokerage firm.

For more information on securities law, contact the team at SSEK.

How Can I Recover Investment Losses?
Recovering Losses When the Broker or Brokerage Firm is Responsible:

When you have lost a significant portion of your investments or your retirement and life savings, you are owed an explanation of what went wrong. Was your broker negligent? Did they withhold certain information? Did they make unsuitable recommendations for your investment? If the broker or brokerage firm is responsible for your losses, you may be able to recover those investment losses with the right team of securities lawyers.

Many cases are handled in securities arbitration for broker disputes, where a panel will listen to your lawsuit. This decision is crucial as it is considered final.

How to Determine if You Have a Case.

Not all cases of financial loss are entitled to a recovery from those losses. Our experience as leading securities lawyers shows us that many times when clients seek our advice, there is no wrongdoing. And losses are often normal.

However, we have discovered fraud or negligence when reviewing client account records that would go unnoticed. Unless someone with the knowledge and experience of a securities attorney reviews them, it is imperative to assess your investment losses with an expert investment attorney.

There are a few primary areas that an attorney will review, including:

  • Your prior investment experiences, if any.
  • Your investment focus and goals
  • What information and knowledge your broker provides.
  • Your account activity
  • Total losses incurred
  • What happened to your investments

What You Can Do to Recover Your Investments
When Investment Loss Happens, it is Crucial to be Proactive as Doing So Can Potentially Help You to Recover Losses:
  • Actively research and gather information about your investment losses. This includes tracking records of your investment account, account statements, written communication, and more with your broker.
  • Hold off on a complaint letter. While it is understandable that this is tempting, anything you do, including mailing a letter or email, can be used against you to defend against the firm or broker's wrongdoing.
  • Get in touch with an experienced securities lawyer. Brokerage firms will bring in their legal teams when a formal complaint is made against them. You must build a solid case with the counsel of an experienced attorney, so you are well equipped to deal with the firm's sophisticated counsel.

What are the Types of Investment Fraud?

Schemers are endlessly creative in finding ways to try to part people with their money. Investment fraud methods that have been more common in recent years:

Ponzi Schemes: Probably the most well-known type of investment scheme. The defining characteristic of a Ponzi scheme is that the fraudster uses new investors' investment money to provide the cash flow to make payments to previous investors. The older investors receive payments either in the form of income (dividends or interest) or redemptions of the investment (partial or whole) under the belief that some underlying investment was generating the funds.

In reality, the thief is just taking money from the new investors and using enough of it to keep the older investors in the dark. There is no real investment generating any returns (or, in some cases, there is an investment but generating far fewer returns than advertised to the investors). Inevitably, Ponzi schemes fail when the fraudster can no longer find the ever-increasing amount of new investor money needed to cover the payments they need to make to previous investors.

Promissory Notes: Some fraudsters get a hold of investor money by claiming to raise funds for some enterprise by selling promissory notes. These notes often have very high-interest rates, including many that purport to offer 12% annual interest. In many cases, these high-interest rates are simply a lure to convince consumers to invest in a non-existent or substantially over-valued business.

Not every promissory note is fraudulent; however, investors should always ask why the industry raises funds through promissory notes rather than traditional financing. If no bank is willing to loan company money at 12%, chances are individual investors shouldn't either.

Pump and Dump: Individuals own substantial shares in a small, publicly-traded company in a pump and dump scheme. Typically, they are low-priced, penny stock level companies. The fraudsters then heavily market the company, including promotions on online message forums, email and mail circulars, and sometimes even direct telephone marketing.

The value and business prospects of the company are heavily overstated to convince the public investors that the stock should be, or soon will be, far more than it currently is. The more investors these people can convince to buy into this stock, the higher the price climbs. Individuals sell off the shares they (or some affiliate of theirs) owned for a substantial profit at artificially inflated share prices. Once they have sold out, they no longer have any reason to be pushing the stock, quickly resulting in the stock price crashing back down to its original levels or even lower, to the detriment of all of the investors who bought in at the urging of these fraudsters.

Binary Options Fraud: Binary Options are a new investment tool that has gained buzz on the internet. Conceptually, in a binary option, an investor is entering an agreement with the firm selling the "option" that is some underlying investment. Like a stock, commodity, index, and so on. It fluctuates past a specific price within a defined period, then the investor wins and gets their money back plus a premium. If they guess wrong, the entire investment is lost and goes to the company. In a binary option, the investor does not ever own the specified asset or have any right to buy or sell it. All the investor has is a contractual right to payment from the company if the terms are met. A few companies in the U.S. are properly registered to offer these investments.

However, far more companies market on the internet overseas, even going so far as to claim they have U.S.-based offices that do not exist to assuage investor concerns. However, once the investors put their money with the firm, it never returns. They refuse to process redemption requests, even if the investor was successful with whatever trades were placed, often claiming that the contract opening the account included numerous requirements the investor has not met before they can withdraw the money. Moreover, as these companies are overseas, it is far more difficult, if not impossible, to recover the money through the legal process.

For more information on common types of investment fraud, contact the team of expert securities lawyers at SSEK Law Firm.

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