Investment Fraud Definition
Every registered stockbroker and investment advisor has a fiduciary duty to their clients. This means they are obligated to prioritize the best interests of the investor over their own financial interests. When a broker or advisor fails to do so and instead engages in misconduct or investment fraud or is negligent in handling their clients’ portfolios, they have breached this fiduciary duty and should be held accountable. Our investment fraud attorneys have experience with these complex cases and know the law. We can make sure your interests and rights are protected if you have been the victim of fraud.
Investment fraud can take many forms. In addition to fraud by registered and licensed brokers, unlicensed and unscrupulous people may engage in investment fraud. They may even set up fake websites and addresses and promote themselves as qualified investment professionals. Investment fraud in all its forms costs investors in this country billions of dollars annually and is both a civil and criminal issue.
The investment fraud definition, according to the Federal Bureau of Investigation (FBI), which investigates criminal cases of investment fraud, describes it as the “illegal sale or purported sale of financial instruments. The typical investment fraud schemes are characterized by offers of low- or no-risk investments, guaranteed returns, overly-consistent returns, complex strategies, or unregistered securities.”
The following sections list some specific examples of stockbroker fraud and other investment fraud schemes.
What is An Example of Investment Fraud?
What is an example of investment fraud? There are many different types of investment fraud, but in the big picture, they are all the same thing—a way for you to be cheated out of significant amounts of money because of the greed of a financial advisor or other party. Some of the most common types of investment fraud are:
- Misrepresentation – Stockbroker misrepresentation occurs when your financial advisor withholds material information or provides you with misleading information in order to impact your investment decision. This could include not disclosing the cost of a commission on a transaction or not adequately informing you about the risks of an investment.
- Unsuitable recommendations – Brokers should only recommend investment opportunities that align with the investment objectives and risk tolerance of the customer. Any investment that does not align with an investor’s goals, or is outside of the stated risk parameters, may not be suitable and may be evidence of fraud.
- Late-day trading – This type of fraud involves executing trades after hours but then recording them as having been executed before the market closed that day.
- Churning – Also commonly known as excessive trading, churning occurs when a broker over-trades in an investor’s account with the purpose of generating commissions for themselves on each transaction.
- Unauthorized trading – When brokers execute trades in accounts without the permission of the investor, they may be engaging in unauthorized trading, unless the account is a discretionary account or the investor has a margin account that has fallen below balance requirements.
- Embezzlement – Embezzlers steal or misappropriate funds that have been entrusted to them by the investor.
- Advance fee schemes – There are endless types of advance fee schemes. They promise large gifts, prizes, trips, and other things of high value in exchange for a smaller fee. The victim loses out when they don’t receive what they thought they were signing up for.
- Ponzi schemes – One of the most widely known types of investment fraud, Ponzi schemes lure investors in and then repay new investors with the funds of older investors. There is rarely any legitimate business activity with Ponzi schemes, and they always fall apart when the scammer is unable to continue paying investor returns.
- Hedge fund fraud – Hedge funds are frequently risky, and there are many ways fraud can occur. Fraud in this area generally involves misleading investors in order to get them to invest in the hedge fund.
- High-yield investment fraud – If it sounds too good it be true, it probably is. High-yield investment programs (HYIP) promise to generate high returns at low risk. This is a red flag that the HYIP is a scam.
- Cryptocurrency fraud – Cryptocurrency is unregulated by the government. It is a very popular way for scammers to trick investors into sending money, engage in money laundering, bribe people, and even avoid paying taxes.
- Pyramid schemes – Pyramid schemes work by relying on recruits. The people bringing in new recruits are then paid with the funds brought on by the new recruits. These are very similar to many multi-level marketing schemes and will always fall apart when the fraudster is no longer able to generate enough new recruits to pay their investors.
- Foreign currency fraud – Foreign currency fraud can include many types of schemes, but they all promise to produce high returns if trading is done in the foreign exchange markets.
- Social media and internet fraud – Any type of scheme using the internet can be considered internet fraud. Hiding money, embezzlement, and misrepresentation are some of the crimes that constitute internet fraud.
“Due to distance and Covid we have never met Matt personally, but we know that he is an honest, wise, and smart person to have on your side. Matt took on a situation where we felt taken advantage of by a firm that sold us an investment which they, contrary to what we were told, did not do due diligence on. We were almost reconciled to the huge loss we were taking due to dishonesty on many levels, our distance from the property, and our lack of knowledge in working with attorneys. We took a chance when we learned Matt was doing a group legal action…and we were able to retrieve a portion of what we had lost. Matt always spoke truth to us. He did not give us “reckless hope.” He was thoughtful and careful, getting consensus from the group, explaining all costs up front, and sending our check expeditiously. We highly recommend him.” – Maria D.
Negligence Can Lead to Investment Losses
Sometimes investment losses aren’t caused by intentional fraud. In some cases, negligence by the broker or advisor is to blame. Some examples of negligence include when brokers don’t perform due diligence and an investment turns out to be a scam, or when they don’t adequately diversify client portfolios to minimize risk and clients lose money, or when they are simply inattentive to their clients’ goals and investment needs and that results in losses.
These are just some of the various types of investment fraud and negligence that people fall victim to. If you have suffered losses due to any of the aforementioned types of investment fraud—or another type of misconduct or negligence entirely—contact our knowledgeable investment fraud attorney to discuss your legal options. We may be able to help you recover your losses through arbitration or a lawsuit.
Get Legal Help from Investment Fraud Lawyers With a Reputation for Recovery.
We Have Won Money in Over 99% of Cases We’ve Handled and Recovered Millions for Investors Like You.
We have obtained millions of dollars in settlements and recoveries for investors who have experienced fraud and negligence. You can visit our case results page to see some of the successes we have achieved on behalf of our valued clients. These results exemplify the commitment of our investment fraud lawyers to putting our strong knowledge and experience to work for you. Get personalized service from our experienced investment fraud lawyer today.
How Do You Know If You Have Been a Victim of Fraud?
Pay Attention to these Possible Signs of Investment Fraud There are several signs of investment fraud. Here are some of the most common:
- A sudden and unexpected loss in your accounts
- Trades you don’t recognize or understand
- Unexpected large gains or losses
- An overall decline in your accounts over time
- Excessive transactions that can’t be explained
- Losses in which other similar investments saw gains
What Should You Do If You Suspect Investment Fraud?
If you believe you’ve been the victim of investment fraud, gather the evidence in a fraud file. This evidence will need to be shown to FINRA arbitrators or the court.
Our investment fraud attorney can also help you understand the extent of the misconduct or negligence based upon the evidence in your file and assist you with the recovery process.
Here are the types of information to include in your file:
- Statements from the accounts that you believe show the suspected fraud
- Name, contact information, license numbers and other information about the broker, brokerage firm or financial advisor who you believe acted fraudulently
- Notes about your telephone and/or in-person interactions with investment advisors that include dates, times and what was said, if possible
- Copies of emails, texts or any other potential written interactions with your broker or advisor
- A timeline of the events, If you think the fraud occurred over a longer period of time
- Your credit reports from all three credit reporting agencies if they show any unusual activity
- A copy of the report if you filed one about the suspected fraud to a police agency
- Witness statements from family or other witnesses, if any, who were with you when you met with your financial advisor.
Contact Wolper Law Firm today to learn how we can assist you with your investment losses due to fraud. Call us at 800.931.8452 to arrange a free consultation with an investor fraud attorney.
Recovering Your Investment Fraud Losses
Learn from Our Investment Fraud Lawyers How to Recoup Your Money
You wanted to save and grow your money for retirement or another important goal. To do so, you turned to a professional broker or advisor for help because you thought you could trust their professional expertise. When you have worked with a financial planning institution, financial advisor, or broker, you might wonder how you became a victim of investment fraud. The problem is that advisors earn a living by making transactions in accounts that generate their commissions. The majority of registered and licensed advisors are ethical and honest. However, as is true in every facet of life, there can be some bad apples among brokers, brokerage companies and financial advisors.
Sometimes, brokers may not do their due diligence in researching investments that turn out to be fraudulent and harm investors, or they may even knowingly engage in misconduct to further their own financial interests. If this has happened in your situation, you may be able to hold your broker accountable through FINRA arbitration or another method of accountability. You can find out what legal options are available to you by speaking with one of our investment fraud attorneys at Wolper Law Firm.
Understanding Investment Fraud and FINRA Arbitration
Arbitration can often be more desirable than litigation, because the process is faster and typically less formal than a courtroom trial. Most often, investment cases that are being arbitrated go to FINRA arbitration.
In FINRA arbitration, both sides present evidence to independent arbitrators chosen by the disputing parties. The arbitrators will determine whether an investment advisor’s misconduct was directly or indirectly responsible for investment losses. There may be a single arbitrator or a panel of three arbitrators. Arbitration happens under U.S. Securities and Exchange Commission approved rules.
If the arbitrators rule in your favor, you could be awarded compensation for your investment losses as well as for the various ways your life has been negatively impacted by the losses in question.
However, FINRA arbitration is binding. If the decision does not go in your favor, you cannot take your case to court. The Arbitration Process in an Investment Fraud Case.
You can start the process of arbitration by filing a FINRA arbitration complaint against your broker and the firm, asking for full recovery of your investment losses. You and your investment fraud attorney will have the chance to present evidence, including financial statements, witness statements, and other relevant materials, to support your claims. The respondent will then have the opportunity to defend themselves and present their own evidence.
Once both parties have been heard, the arbitrator or arbitrators will deliberate and review the case in its entirety to determine whether investment fraud occurred and whether the respondent is liable for your losses. If they are, the arbitrators will also determine how much they should be ordered to repay you for what you’ve been through.
From there, the defendant will be required to compensate you within 30 days of the decision’s being issued. When seeking financial restitution, this quick repayment period often makes FINRA arbitration a more attractive option than litigating a case in the courts, which can take much longer. Although FINRA arbitration does not provide the wronged investor with opportunity for appeal if they do not win, it is still the preferred option for financial recovery because of how quickly investors can recoup their money if they win. If you go to court, years may pass before a decision is made, and significantly more time could pass to get through the appeals process.
If you are unsure whether you want to move forward with a FINRA arbitration claim or consider your other legal options, you aren’t alone. Your investment fraud lawyer will closely review your case to determine which path is most likely to produce a favorable outcome for you and your family.
Litigating Your Investment Fraud Case
While arbitration through FINRA is often required and typically the most expedient way for investors to recover their money, sometimes suing the broker and their brokerage firm in civil court may be the appropriate avenue. If your investment advisor is unregistered, you may have to litigate your case in court rather than through the FINRA arbitration process.
A courtroom proceeding generally follows the same basic general steps as arbitration. You and your attorney will present your evidence to the court; the other side will present their evidence; and the judge will make a decision. If the court ruling goes in your favor, you will be entitled to an award of compensation to pay you back for your losses and potentially for other damages you suffered.
Negotiating Investment Fraud Settlements through Mediation
Sometimes investment fraud cases can be settled through a process called mediation, which can occur before going to arbitration or litigation. They may also be mediated after arbitration, or a trial has begun. Mediation is a more informal process using a neutral mediator who may be able to help facilitate settlement between parties. Mediation is available through FINRA and may be a required part of lawsuit proceedings. Settling a claim outside of arbitration or litigation can be beneficial if a fair settlement offer is made, because then you are guaranteed compensation. Of course, whether this is a viable option will depend on all the circumstances involved.
Unlike arbitration, the outcome in a trial can be appealed, which can delay any award, potentially for years. The upside is that if the trial court decision doesn’t go in your favor, you also have the right to file an appeal.
We Offer Free Case Reviews to Wronged Investors Nationwide. Reach Out to an Investor Fraud Attorney to Understand Your Legal Options.
State and federal securities laws are very complex. Proving securities fraud can be equally so, which is why you need an investment fraud lawyer who is skilled in delivering beneficial outcomes to investors who have been cheated out of their hard-earned money and investments.
To learn more about how a respected investment fraud lawyer from Wolper Law Firm may be able to help you recoup your investment losses, contact us to schedule a consultation. Once we understand the circumstances of your losses, we will advise you about what options you may have for recovery.
Our firm is pleased to offer free, no-obligation case consultations to wronged investors across the country. If you believe you have been the victim of investment fraud, don’t hesitate in reaching out to us.
Our firm is pleased to offer free, no-obligation case consultations to wronged investors across the country. If you believe you have been the victim of investment fraud, don’t hesitate in reaching out to us.
Call us today at 800.931.8452 or submit the quick contact form we have included at the bottom of this page.
Investment Fraud FAQs
Our Investment Fraud Lawyers Address Common Concerns
Finding out that you have been a victim of investment fraud can be devastating, and you likely have many questions about the process of recovering the money you lost and how the investment fraud happened. Below we provide answers to some of the most frequently asked questions regarding investment fraud, the FINRA arbitration process and related issues so you can gain peace of mind prior to your consultation.
If you have other questions that weren’t answered on this page and you have yet to schedule a complaint review, you can do so by reaching out to one of our experienced investment fraud lawyers. Call us today at 800.931.8452 to arrange a time to speak with one our attorneys.
FINRA Rule 12206 sets the time-related eligibility requirements for FINRA arbitration claims. Investors have a maximum of six years from the date that the investment fraud occurred to initiate a FINRA arbitration complaint. It is important that investors keep a close eye on their accounts and contact an investment fraud lawyer as soon as they notice inconsistencies. Don’t risk running out of time for initiating a complaint. Reach out to us today.
No, FINRA arbitration is not the only way to recover your funds after losing money due to investment fraud. However, it is often the best way to go about getting your money back. FINRA arbitration decisions are not eligible for appeal, but the benefits often offset this risk. If you were to bring your case to court, not only are decisions appealable, but the entire process can drag on for many years. Even if the judge ultimately decides that you should be repaid, it can be many more years before you are compensated. With FINRA arbitration, the entire complaint process can be settled in as few as eighteen months.
Whether you can sue your stockbroker in court depends on whether you have an arbitration agreement with your brokerage firm. If you do, you will probably have to arbitrate your case with FINRA. If you haven’t signed an arbitration agreement, you may be able to pursue your claim through a civil lawsuit. Once one of our investment fraud lawyers reviews the circumstances of your case, we can advise you about your options for pursuing compensation. Call us at 800.931.8452 so we can learn how we can help you.
You are not required to have an attorney to go through FINRA arbitration proceedings. However, a FINRA arbitration attorney understands how to investigate and best present the evidence of investment misconduct or negligence. With the help of an attorney who has extensive experience in handling investment fraud cases that go to FINRA arbitration, you will likely stand a much better chance of a satisfactory outcome. As with a court trial, there is no guaranteed outcome in arbitration. You will have to convince the arbitrators through the evidence that you were defrauded by your financial advisor. Our investment fraud attorneys will work hard to build a powerful case on your behalf so that we can get you a fair recovery.
When you are choosing a lawyer, one of the most important questions to ask is “How do you handle investment fraud?” You want an investment fraud lawyer who is willing and able to take your case to arbitration or to litigation if the situation calls for it. You want an attorney who is not afraid to aggressively take on the corporations and individuals who commit fraud against innocent investors. You want to work with a firm with extensive experience in taking on these cases.
Our investment fraud attorneys not only have experience taking cases to arbitration and litigation for investors, we also have numerous years of experience defending high-dollar brokerage firms and investment companies. What this means is that we have an unparalleled perspective about how these companies operate, which serves to benefit our clients because we can often foresee the legal arguments they may make to defend themselves and be prepared to counter them.
Anyone who invests may be a victim of investment fraud. However, people who are less educated about investing and place too much trust in their brokers or financial advisors may be victims. Passive investors who don’t regularly review their account statements may fall prey to investment fraud. Elderly investors who have built up a lifetime of savings are often targets of unscrupulous brokers, financial advisers, and even their own friends and family members. In fact, elder abuse in investing has become a focus area for state and federal regulators. Elderly clients, as well as other investors, are often victims of unauthorized trading, unsuitable investments, broker theft and other misconduct and breaches of fiduciary duty. No matter a person’s age or investment background, it’s highly important that all investors monitor their investment accounts for illegal activity.
Perpetrators of investment fraud can be licensed stockbrokers, financial advisors and others who are trusted by their investor clients. They can be formerly registered or licensed brokers who have lost their credentials because of previous misconduct, but can still talk the necessary talk to draw investors in. They can also be people who were never registered or licensed but are posing as financial planners or brokers specifically to defraud investors. And sometimes, sadly, everyday people that investors trust — including family members, friends, and others — engage in investment fraud. Who committed the fraud, the details of the fraud and other factors will help determine your legal remedies.
The punishment for investment fraud can be severe, depending on all the circumstances. If found guilty of investment fraud, in addition to paying restitution through arbitration or civil claims, brokers, financial professionals and others who intentionally or even negligently commit fraud may lose their licensing and certifications. They can also face criminal charges and penalties, including jail time.
An extreme case is that of Bernie Madoff who defrauded tens of billions of dollars from investors in a Ponzi scheme. Many lost their entire life savings. He was sentenced to 150 years in prison. While most cases and punishments for investment fraud are not this extreme, people who financially defraud others will be held accountable when the evidence against them can be proven. If you were the victim of fraud, let our investment fraud lawyers work to help you get your money back and hold the responsible party accountable.
Protect Yourself Before You Invest
Don’t Fall for Empty Promises and Get-Rich-Quick Schemes
If you’ve already lost money due to investment fraud, we may be able to help you recover your losses. Contact our investment fraud attorneys to understand your options. To steer clear of investment fraud in the future, learn how to recognize potentially fraudulent investment offers.