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Investment Fraud FAQs


What are Some of the Common Signs of Investment Fraud?

Classic Investment Fraud Indicators

Each circumstance is its own unique situation, however there are some common signs that start to occur that may indicate some sort of fraud is going on with your investment:

  1. It is requested that you pay in cash
  2. The broker or brokerage firm acts very aggressive
  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 particularly short window of time

Not all of these signs are indicative that fraud is occurring, however they should be taken seriously and researched fully before putting your money into the hands of a broker or brokerage firm.

For more information on detecting common signs of investment fraud, 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 he or she withhold certain information? Did he or she 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.

When it comes to broker disputes, many cases are handled in securities arbitration, where a panel will listen to your case. This decision is crucial as it is considered final. How to Determine if You Have an Investment Fraud Case

Not all cases of financial loss entitle you to recover those losses. Our experience has shown us that many times when clients seek our advice, there was no wrongdoing, but rather the losses were normal. Just as often, 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 had reviewed it. This is why it is incredibly important to review your investment losses with an 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 provided
  • 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 around 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 as to why this is tempting to do, but anything you do, including mailing a letter or sending an e-mail can be used against you to defend against the firm or broker’s wrongdoing.
  • Get in touch with an experienced securities fraud attorney. Brokerage firms will bring in their legal teams when a formal complaint is made against them. It is crucial that you build a solid case with the counsel of an experience attorney so you are well equipped to deal with the firm’s sophisticated counsel.

What are the Types of Investment Fraud?

Fraudsters are endlessly creative in coming up with ways to try to part people with their money. Investment fraud methods which have been more common in recent years:

  • Ponzi Schemes. These are probably the most well known type of investment scheme. The defining characteristic of a Ponzi scheme is that the fraudster is using the investment money of new investors 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 the funds were being generated by some underlying investment. In reality, the thief is really 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 less 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 he or she needs to make to previous investors.
  • Promissory Notes. Some fraudsters get a hold of investor money by claiming to raise money for some enterprise through the sale of 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. To be clear, not every promissory note is fraudulent; however, investors should always ask why the business is raising funds through promissory notes rather than through traditional financing. If no bank is willing to loan a company money at 12%, chances are individual investors shouldn’t either.
  • Pump and Dump. In a pump and dump scheme, individuals own a substantial amount of shares in a small, publicly traded company, typically low priced, penny stock level companies. The fraudsters then go out and 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 in an effort 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 stock price climbs. At some point, these 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 a lot of buzz on the internet. Conceptually, in a binary option an investor is entering an agreement with the firm selling the “option” that if some underlying investment in something like a stock, commodity, index, etc., goes up or down past a certain price within a defined period of time, then the investor wins and gets his or her money back plus a premium. If he or she guesses wrong, the entire investment is lost and goes to the company. In a binary option, the investor does not ever actually 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. There are a few companies in the U.S. that are properly registered to offer these investments. However, there are far more companies that market on the internet from overseas, even going so far as to claim they have U.S. based offices which do not exist to assuage investor concerns. However, once the investors put their money with the firm, it never comes back. 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 are allowed to withdraw the money. Moreover, as these companies are overseas, it is far more difficult, if not impossible, to recover the money through legal process.

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

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