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What Are the Common Signs of Investment Misconduct?

Misleading investors, whether done intentionally or through willful disregard, is a serious form of broker misconduct. As investors, it is important to recognize the telltale signs of investor misconduct so you may spot it swiftly, minimize your losses, and enhance your chances for recovery through a securities fraud lawsuit or a FINRA complaint.

If you are seeing sudden drops in your portfolio, unusually high transactions, and corresponding fees, or need help getting in touch with an elusive or unresponsive broker, our investment fraud attorneys may be able to help. At Wolper Law Firm, our practice is dedicated to supporting investors who have been taken advantage of by unscrupulous financial industry professionals. Contact us today for a consultation about your possible claim.

What Is Investment Misconduct?

Investment misconduct is any attempt to misrepresent or mislead investors in order to extort funds under inappropriate circumstances. It can look like simple occupational fraud, such as generating high commission fees or misrepresenting broker credentials, or be as far-reaching as the 2008 Bernie Madoff scam or other notorious Ponzi schemes. Examples of this kind of financial misconduct include:

  • Advance fee schemes: Advance fee schemes promise investors access to insider opportunities or ongoing returns in exchange for high upfront payments. Often the promised opportunity never materializes or falls far short of the sales pitch used to convince investors to buy in.
  • Pyramid and Ponzi schemes: Pyramid schemes and Ponzi schemes both rely on new investors to sustain fraudulent returns. They lure in new investors periodically, or else they collapse in upon themselves, as they generate no actual profit.
  • Asset misappropriation: This kind of occupational fraud can include brokers who pay themselves out of client accounts, siphon off funds, wrongfully endorse client signatures on checks and money orders, or make illegal disbursements, among others.
  • Bribery: The portfolio your broker recommends to you should never be influenced by payments from outside interests.
  • High-yield investment fraud: In this kind of scam, investors are often promised “high return, zero risk” opportunities that won’t last unless they buy in immediately. In all investments, there is some inherent risk. However, high-yield investment scams bank upon a client’s fear of loss as well as their fear of missing out in order to lure them into a fraudulent scenario.
  • Concealing conflicts of interest: If your financial advisor has a stake in an investment opportunity that they recommend to you, conceals that information, and then you suffer a loss because of this selection, you may be able to recover some of your investment with the help of a financial fraud attorney.

Unsuitable Investments: A Common Form of Investment Misconduct

Brokers and financial advisors are bound by the standard of suitability to research the opportunities that they offer to their clients. However, some brokers may encourage their clients to invest in products that are unsuitable for them, i.e. they do not align with their financial situation, risk tolerance, or long-term goals. A key sign of unsuitability is when a broker fails to properly assess or discuss their client’s needs, goals, and risk appetite before making recommendations. For example, a broker might push high-risk investments to a conservative investor who prefers stable, low-risk options, simply to earn higher commissions. Such actions violate the broker’s obligation to act in the client’s best interests and can be considered broker misconduct.

If you feel that your broker is pressuring you to invest in products that do not fit your personal financial objectives, you should consider speaking to an unsuitable investment attorney.

Common Signs of Investment Misconduct

Investment-related misconduct comes in many forms. It can be out in the open and flagrant, but most often it is concealed and subtle. The hallmark signs of investment misconduct are:

  • Sudden, precipitous drops in the value of your portfolio, particularly when not in tandem with the overall financial markets
  • Your financial advisor is recommending that you pursue an investment strategy that carries a higher degree of riskwith which you are comfortable
  • Portfolio concentration in a single security, sector of the market, or asset class
  • Your financial advisor is evasive and non-responsive
  • Your financial advisor describes a trade or strategy as risk-free or ‘guaranteed’
  • Transactions are made without your authorization or with insufficient justification
  • A high number of transactions are recommended by a financial advisor

How Do I Know If an Investment Company Is Legitimate?

A financial advisor who invents time constraints, tries to prevent you from conducting your own research, or promises high returns with no corresponding risk is not being honest with you. Discrepancies in your accounts, missing statements, unresponsive brokers, or pushy sales tactics are all warning signs that an investment company may not be legitimate.

Prior to forming a relationship with a broker, it is a good idea to research their background using FINRA BrokerCheck. If you are concerned that your broker is not being transparent with you, ask for documentation on a security such as a prospectus or an offering circular to ensure that your securities are both registered and documented. This extra step can help protect your investment and confirm that the securities you’re investing in have been disclosed to regulatory authorities.

Steps to Take if You Suspect Investment Misconduct

One of the most common investment mistakes that clients make after a loss is assuming that nothing can be done. If you suspect investment misconduct, you may be able to recover some of your lost or stolen funds with the help of an investment loss attorney. Steps to take include:

  • Documenting all of the exchanges you have had about the security or stock with your broker. Print out text messages and emails, and assemble any documents you have signed as well as any promotional information you were given about the disputed investment product.
  • Asking questions to your broker. Consider escalating your concerns within the larger company if your broker is unresponsive. Report the situation to your financial advisor’s supervisor and see if they can help.
  • Filing a complaint with FINRA.
  • Speaking with an investment misconduct attorney who can help you gather relevant evidence, structure your complaint, present your findings, and negotiate on your behalf.

How Can an Investment Loss Lawyer Help Me Get My Money Back?

An investment fraud lawyer is your best line of defense against investment misconduct. Our team at Wolper Law Firm can help maximize your potential recovery. With our extensive experience in handling investment misconduct cases, we are adept at identifying red flags, gathering evidence, and negotiating on your behalf. If your broker failed to exercise reasonable care or diligence in managing your investments, we can help build a case against them. Our legal advice tailored to our clients’ specific situations has helped us recover millions for our clients, including a $10 million settlement against a national brokerage firm for securities fraud.

How to Prevent Investment Misconduct

To minimize the likelihood that you will be a victim, there are several procedures that investors can and should implement, including the following:

  • Regularly review your account statements. There is a wealth of information that will allow you to:
    • Confirm that you have authorized the purchase and/or sale of the investments in your account;
    • Confirm deposits/withdrawals; and
    • Evaluate the performance of your investments.
  • Have quarterly meetings with your financial advisor to discuss your accounts and the strategy going forward.
  • Pay attention to the news. If there is political or economic acrimony, there is a higher likelihood that the financial markets will respond negatively. These changes could impact the value of your portfolio.
  • Do not accept short, non-responsive answers from your financial advisor. If you have a question about your investments, you are entitled to an answer.
  • Ask your financial advisor for the fees and commissions that are being charged to the account. This includes fees associated with new issue securities, such as IPOs. 
  • Brokerage firms periodically send correspondence to customers, advising them of the risk profile of their investments. If you are told that an investment you own carries more risk than you are comfortable with, have a discussion with your financial advisor or their branch manager.

It is understandable to put your faith in an investment professional, but should they betray that trust, there are options available for recourse. You do not have to accept everything that your financial advisor tells you, especially if your gut is saying something is not right. If you need help reviewing your claim, Wolper Law Firm is available for a consultation.

Do You Suspect Investment Misconduct? Speak To an Investment Loss Attorney For Help

Wolper Law Firm represents investors nationwide in securities litigation and arbitration. Matt Wolper, the Managing Principal of the Wolper Law Firm, is a trial attorney who has handled hundreds of investment loss cases during his career involving a wide range of products, strategies, and securities. His expertise, professionalism, and insight has helped build Wolper Law Firm’s 99% success rate for his clients.

If you need help protecting your investment or navigating your concerns regarding an investment loss recovery, we can help. Contact Wolper Law Firm for a confidential consultation.

Attorney Matthew Wolper

Attorney Matthew WolperMatt Wolper is a trial lawyer who focuses exclusively on securities litigation and arbitration. Mr. Wolper has handled hundreds of securities matters nationwide before the Financial Industry Regulatory Authority (FINRA), American Arbitration Association (“AAA”), JAMS, and in state and federal court. Mr. Wolper has handled and tried cases involving complex financial products and strategies ranging from traditional stocks and bonds to options, margin and other securities-based lending products, closed/open-end mutual funds, structured products, hedge funds, and penny stocks. [Attorney Bio]