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Investments Loss in Securities, Stocks & Bonds

Investment Fraud

When it comes to long-term financial goals, investments can help you achieve this. Many investors, especially those who are investing for the first time, choose to work with a financial advisor or broker to determine which type of investment is right for their goal objective, financial needs and risk level.

However, many investors can easily fall victim to investment fraud, especially if they are not an experienced investor or have been mislead into unsuitable investment options by a financial advisor or stockbroker.

Our investment fraud lawyers at Shepherd Smith Edwards and Kantas, LLP (SSEK Law Firm) have worked with many investors across the United States to help them recoup losses suffered by fraudulent actions carried out by their broker-dealers, broker and financial advisors.

Investment Fraud Claims: Verbiage

If this is your first time making an investment fraud claim or dealing with a securities lawyer, it common to be unsure of some of the verbiage that is used. Learn the common verbiage that used when working with experienced investment attorneys on cases involving investment fraud can be extremely helpful.

Our skilled securities lawyers work with clients closely, walking them through the details involved in various types of investment claims and cases.


Buying shares of a company’s stock is a way to own a piece of that company. Stocks come in a wide variety, and they often are described based on the company’s size, type, performance during market cycles and potential for short- and long-term growth.

They can include “common” stock, which gives an owner no priority in the company, and “preferred” stock, which generally pays a specific dividend that must be paid prior to any distributions to other stockholders.

Bonds / Fixed Income

A bond is a loan an investor makes to an organization in exchange for interest payments over a specified term plus repayment of principal at the bond’s maturity date.

Similar “fixed income” vehicles are structured with the same concept in mind: the investor is paid interest for a certain period of time and then receives back his/her principle. The owner of the bond or fixed income generally does not have any equity interest in the company.

Types of Bonds/Fixed Income U.S. Treasury Securities

U.S. Treasury securities (“Treasuries”) are issued by the federal government and are considered to be among the safest investments an investor can make because all Treasury securities are backed by the “full faith and credit” of the U.S. government.

Agency Securities

“Agencies” is a term used to describe bonds issued or guaranteed by U.S. federal government agencies and bonds issued by government-sponsored enterprises (GSEs)—corporations created by Congress to foster a public purpose.

Municipal Bonds

Municipal bonds, or “munis,” are security bonds issued by states, cities, counties and other governmental entities to raise money to build roads, schools and a host of other projects for the public good.

These bonds still function as a loan as the money that you invest are used by the local government body to pay for infrastructure and other government projects, like those mentioned above, and to generate a cash flow.

International and Emerging Markets Bonds

These are bonds issued by foreign governments and companies. Since interest rate movements may differ from country to country, international bonds are another way to diversify your portfolio, but carry their own set of risks.

Corporate Bonds

Companies issue corporate bonds to raise money for capital expenditures, operations and acquisitions. Corporate bonds are issued by all types of businesses and are segmented into major industry groups.

Investors who buy these kind of bonds are lending money to the company in question so that they can finance activities ongoing operations, M&A and business expansion opportunities. In return, the company will make a legal commitment to pay interest on the principal.

Mortgage-Backed Securities

Mortgage-backed securities are bonds secured by home and other real estate loans. They are created when a number of these loans, usually with similar characteristics, are pooled together.

Essentially these kind of bonds turn the bank into a middleman between the homebuyer and the investment company. The investor who buys a mortgage-backed security is lending the money in question to the homebuyers. In order to be sold on the market, mortgage-backed securities must be issued by a government-sponsored enterprise (GSE) or a private financial company.

Bank Products

Deposits at banks and most credit unions are federally insured up to a limit set by Congress. And transaction (or checking) accounts and deposit accounts offer liquidity, making it easy for you to get to your funds for any reason—from day-to-day expenses to a down payment or money for unexpected emergencies.

The interest earned from bank products—including certificates of deposit (CDs)—tends to be lower than potential returns from other investments.

Bank Products Include
  • Savings Accounts – Insured deposit accounts, which pay interest and give flexibility to make as many deposits as the client would like but have more withdrawal restrictions that the checking accounts and higher minimum deposits.
  • Money Market Accounts – Deposit accounts that give safety, convenience, and liquidity of a savings accounts, plus a slightly higher interest rate.
  • Certificates of Deposit – An insured deposit account that offers a predictable return at high interest rates than savings accounts, however, money cannot be withdrawn for a set term without a penalty.
Investment Funds

Investment funds — such as mutual funds, closed-end funds and exchange-traded funds—pool money from many investors and invests it according to a specific investment strategy. Investment funds can offer diversification, professional management and a wide variety of investment strategies and styles.

However, depending on the fund, they can involve leverage, derivatives or other riskier investments and investment strategies.

Annuities and Insurance Products Annuities

An annuity is a contract between an investor and an insurance company, in which the company promises to make periodic payments, either starting immediately—called an immediate annuity—or at some future time—a deferred annuity.

Annuities can be for a fixed amount, or it can be variable. A fixed annuity is not tied to the market and provides steady payments at a fixed rate. A variable annuity, on the other hand, would be tied to some part of the market, usually an index.

Although there are many forms these annuities can take, a typical variable annuity provides no guaranteed returns but could give the investor the possibility of higher returns than a fixed product could.

Insurance companies have also created hybrid products, called indexed annuities, which allow an investor to participate in some upside of the market while having some protection. Annuities can be very complicated and potentially costly investments for investors. They can also provide some tax benefits.

Life Insurance Products

Life insurance products can also be investments. Life insurance products come in various forms, including term life, whole life and universal life policies. There also are variations on these—variable life insurance and variable universal life—which are considered securities.


Options are contracts that give the purchaser the right to buy or sell a security, such as a stock or exchange-traded fund, at a fixed price within a specific period of time. Some options have unlimited upside and downside, while others can only result in the loss of the contract value.

Options are popular among speculators as they allow an investor to control a large number of shares of an investment with minimal initial cash outlay. This inherent leverage adds significantly to the risk of options.

Futures Contracts – Commodities and Securities

Commodity futures contracts are agreements to buy or sell a specific quantity of a commodity at a specified price on a particular date in the future. Commodities include metals, oil, grains and animal products, as well as financial instruments and currencies. With limited exceptions, trading in futures contracts must be executed on the floor of a commodity exchange.

Federal regulations permit trading in futures contracts on single stocks, also known as single stock futures, and certain security indices. As with options, futures contracts can have a great degree of risk attached to them.

Private Placements

Private placements, also known as alternative investments are investments that are exempt from the registration requirements of the §4(a)(2) of the Securities Act. Regulation D allows certain investments to be exempt from these registration requirements so long as it is not marketed to more than a certain number of individuals that are not considered Accredited Investors. So long as the investment is sold to accredited investors, they maintain this exemption.

There are several categories in which an investor can qualify as an accredited investor under Rule 501 of Regulation D. The most commonly used criteria for identifying and individual investor as accredited is based on income and net worth. The investments include various products that may offer higher rates of return, but with an increase in risk.

Some common examples of private placements include:

  • Real Estate Investment Trusts (REITs)
  • Non-Traded REITs
  • Hedge Funds
  • Equipment Leasing Agreements
  • Tenants-in-Common
  • Various oil and gas limited partnerships

Additionally, private placements and other alternative investments often are not liquid, and therefore inappropriate for an investor that may need access to their cash.

When it comes to investments, the person that handles your money or advises you on which opportunities to pursue should have your best interest in mind. However, it frequently happens that someone is more worried about their own bottom line than your investment portfolio and therefore can mismanage your money.

At SSEK Law Firm, our team of investment fraud attorneys will assess your case and help make sure that you get back what is rightly yours.

Financial Product Failures

During the past 20 years, brokerage firms and their brokers have become more and more focused on selling “products” as opposed to the actual selling of individual stocks and bonds.

Some of these products are easily understood and explained, such as equity or bond mutual funds, but problems arise when the firms and their brokers attempt to supplement what was supposed to be just a simple investment.

Examples of this are the Morgan Keegan RMK Funds and the Schwab YieldPlus Funds, both of which were touted and promised to investors as being “safe and secure” investments, which instead suffered unacceptable losses for such products.

The impetus for these financial product failures was largely due to an investment called “derivatives” which were added to the funds as a means of bolstering their returns. The brokerage firms and their brokers would advertise the superior returns on these products as if such returns were a result of the firm’s market acumen. In reality, the only thing that was accomplished for investors was an increased risk taken in the product, while still being advertised to them as relatively safe.

Other products are simply gross misrepresentations of the very nature of the product. One such glaring example is the Principle Protected Note (“PPN”), which by the name alone would lead a reasonable investor to understand that the principal was somehow protected and guaranteed.

In reality, many brokers were actually misled into promising that to investors by their firm’s own marketing materials on the product. A current product that is popular amongst brokers is the Securities Backed Loan (“SBL”), or basically a brokerage firm credit line. The firms and brokers extoll the upsides of these products, painting them as a win/win investment.

However, unlike a traditional bank line of credit, which is collateralized against real property, the SBL is collateralized against the assets in your portfolio. And unlike a bank, when the value in your portfolio decreases, the brokerage firm will sell off assets in your portfolio to offset those drops in value. By doing so, your portfolio is robbed of any potential increases in value in its other assets.

One financial product failure which is garnering a lot of national and international attention at the moment is that of GPB Capital private placements. Many investors have been unsuitably recommended these products by brokers even with the knowledge that they were dropping in value.

Free Investment Fraud Consultation

Here at SSEK Law Firm, our securities lawyers have many years of experience helping investors who have been wronged by investment fraud recoup any losses that they occurred. Whether through a financial product failure or broker misconduct, we are confident that we can help you.

We offer a free, no obligation case consultation. Get in touch with our team of lawyers today and we can assess your situation.

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