Your financial advisor, stockbroker, or brokerage firm should never betray the trust their clients put in them. Unfortunately, while most brokers and advisors work with integrity and do their jobs honestly and to the best of their abilities, there are some that do not. When they turn out to be fraudulent and unscrupulous, the investors who have entrusted them with their money lose not only their funds but also their trust in the entire industry.
But nobody is above the law, and these individuals and businesses can be held accountable for their actions if they either fail to protect their investors from fraudulent activity or intentionally deceive them.
Arbitration conducted by the Financial Industry Regulatory Authority (FINRA) is a frequent method for holding individuals responsible for investment fraud. As the main self-regulatory agency for financial brokers in the United States, FINRA is tasked with the responsibility of monitoring broker and brokerage company misbehavior as well as carelessness. Under FINRA’s arbitration system, they employ independent arbitrators and arm them with the authority to force brokers and financial planners to compensate investors for losses sustained because of their actions.
What is investment fraud?
The Federal Bureau of Investigation (FBI), which investigates criminal cases of investment fraud, defines investment fraud as the “illegal sale or purported sale of financial instruments.” The FBI has a long and successful track record of investigating investment frauds and related crimes, prosecuting the offenders and bringing them to justice. Some hallmarks of investment fraud are offers of investments with low or no risk, guaranteed returns, too consistent returns, complicated techniques, or unregistered securities.
It is the duty of every qualified stockbroker and financial advisor to act in the best interests of their clients. This means that they must put the interests of the investor ahead of their own. A broker or advisor has a fiduciary duty to their clients to act in their best interests, and if they do not, they should be held accountable for their actions.
Common Investment Fraud Schemes
Every year, investment fraud costs American investors billions of dollars and is a criminal as well as a civil concern. There are a variety of ways in which an investor’s money can be stolen. Registered and regulated brokers may also commit fraud. Most of them are savvy and bank upon the naivete of their clients in order to steal their money. Then there are also scamsters who create fake websites and email addresses, advertise themselves as financial advisors, and lure their unsuspecting victims.
Here are the most common investment fraud schemes:1. Ponzi Schemes
These fraudulent pyramid schemes got their name from Charles Ponzi, a con artist who operated in the 1920s and convinced thousands of people to engage in a scam involving the speculating of postage stamps. Ponzi schemes are still utilized today and continue to operate in a manner that is analogous to robbing one person to pay the second and robbing the second person to pay the third. This means that money from new investors is used to reimburse earlier investors until the plan goes belly up and everyone loses the money except the fraudster. In a Ponzi scheme, as opposed to a pyramid scheme (which comes next on the list), the investments or assets that are supposed to underpin the system typically do not even exist.2. Pyramid Schemes
A pyramid scheme is an investment program that is primarily focused on recruiting others to join in exchange for an investment or fee. Investing money and recruiting new investors are the only requirements of participants in pyramid schemes. Despite assertions that they are selling legal goods or services, the con artists use a significant portion of the money invested to make “returns” to early-stage investors.
Even if the things being marketed have legitimacy, the pyramid scheme will fail in the end. At some point, the scale of the scheme becomes unmanageable, and the promoters are no longer able to attract sufficient capital from new investors to pay back earlier investors. In most cases, the fraudsters who are behind these scams will go to tremendous lengths to make their programs look like genuine multi-level marketing opportunities.3. Pump-and-dump scams
Most cryptocurrency scams fall under this umbrella. Fraudsters will pull off this scam by purchasing low-priced shares of some company. They sit on the shares for a while, then they begin disseminating misleading information with the intention of driving up the price of the stock by generating more interest in it. As a direct consequence of this, there is a significant rise in demand, and consumers, thinking they are receiving a good bargain, fall for the ruse and invest in the stock.
When the stock prices have reached a sufficiently high price, the fraudsters dump their stocks and vanish into thin air. Investors are left holding basically worthless stock and suffering a significant financial loss. Always proceed with extreme caution when dealing with individuals who try to sell you stock online and claim to have “insider information.”4. Pre-IPO investment fraud
Fraudsters would present their victims an exciting opportunity to purchase stock in a company that isn’t yet listed on the stock exchange. However, the company does not go public, and the person who approached you is either not affiliated with it or has no connection to it. Prior to a company’s public debut, scams like these are commonplace. These types of investments carry a high level of risk and particularly appeal to people who want to get rich quickly.5. Promissory notes fraud
A promissory note is comparable to a loan agreement, but with a lot fewer terms and conditions buried in the fine print. It’s common for a firm’s investors to agree to lend the company money for a predetermined period. Companies pledge to return a specified amount to investors in exchange for their money. Promissory notes can be good investments, but the ones that are widely advertised are frequently useless. Individual investors should be extremely wary of this form of investment, as most well-established enterprises have borrowing agreements with financial institutions. Proprietary securities brokers and the SEC are both required to register most valid promissory notes before they can be sold, so keep a close eye out for both. “Risk-free investments,” “assured returns,” and “guaranteed profits” are some of the sales pitches fraudsters use to lure in their victims.6. Real estate investment frauds
Investors continue to be enticed by the promise of quick returns from real estate investments. Scams involving real estate investments have been around for a long time. Two of the most popular investment pitches involve so-called “hard-money lending” and “property flipping.”
The term “hard-money lending” is used to describe investments in real estate that are not financed by typical bank loans. Investors fund private lenders who lend money to borrowers. Pooled investments are securities and as such are subject to the protections and disclosure obligations provided by securities laws and regulations when money from multiple investors is utilized to buy a property.
Property flipping involves buying troubled real estate, renovating it, and reselling it for a profit. Legally, property flipping with borrowed cash or outside investments is perfectly fine. But that doesn’t mean it’s immune to misuse. A scammer may misrepresent the property’s valuation or the flip’s profit potential to deceive investors. They may also misappropriate borrowed or invested cash or employ unwary investors as “straw buyers” with banks or mortgage lenders, using their names and credit ratings.
How Do You Know If You Have Been a Victim of Fraud?
Keep an eye out for any of these potential red flags of fraudulent investment activity. Investment fraud may be recognized by its many telltale indications. Here are some of the more frequent ones:
- 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.
You lost your money. Now what?
If you suspect that you have been a victim of investment fraud, you should compile the evidence to be presented either to the FINRA arbitrators or to the judge presiding over the case.
Here are the types of information to include in your evidence 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.
How we can help
It’s normal to be dejected and disappointed after suffering a substantial loss on an investment. At Wolper Law Firm, our experienced team of investment fraud lawyers in New York will help you understand your legal options and work with you to obtain compensation for your losses. As soon as we accept your case, we’ll fight tirelessly to get you the compensation you deserve.
Contact Wolper Law Firm today to learn how we can assist you with your investment losses due to investment or stock fraud. Call us at 855.453.8605 to arrange a free consultation with a seasoned New York investor fraud attorney.
New York Investment Fraud FAQs
You may have many questions after discovering that you’ve been a victim of investment fraud, and you’ll want answers as soon as possible. To help you feel more at ease before your session, we’ve compiled a list of commonly asked questions about investment fraud, the FINRA arbitration procedure, and related topics.
Investing fraud may affect everyone. Less-educated investors who blindly trust their brokers or financial advisers may be victims. Investment fraud may target passive investors who don’t scrutinize account statements. Unscrupulous brokers, financial advisors, and even family members target elderly investors’ life savings. State and federal officials are focusing on elder investing abuse. Elderly consumers are frequently victims of improper trading, inappropriate investments, broker theft, and other misbehavior and fiduciary breaches. Regardless of age or financial experience, all investors should regularly check their accounts for illicit behavior.
As per FINRA Rule 12206, investors have six years from the fraud’s date to file a FINRA arbitration complaint. When investors find anomalies in their accounts, they should contact a fraud attorney. Don’t delay in filing a complaint. Contact us.
No, FINRA arbitration isn’t the only way to recover investment fraud losses, but it’s the best approach to get your money back. FINRA arbitration verdicts aren’t appealable, but the rewards often outweigh the risk. In court, rulings are appealable, but the process can take years. Even if the judge rules in your favor, you may not be paid for years. FINRA arbitration can resolve a complaint in 18 months.
Whether you can sue your stockbroker relies on your arbitration agreement. If so, FINRA may arbitrate your case. You can file a civil case if you haven’t signed an arbitration agreement. After reviewing your case, one of our investment fraud lawyers can advise you on compensation options.
FINRA arbitration doesn’t require a lawyer, but a FINRA arbitration lawyer knows how to investigate misbehavior or negligence. With a lawyer who has handled investment fraud claims in FINRA arbitration, you may have a stronger chance of success. Arbitration, like court proceedings, has no promised outcome. You must show that your financial advisor deceived you. Our investment fraud lawyers will develop a strong case for you so you can recover compensation.
One of the most important questions to ask a lawyer is, “How do you deal with investment fraud?” You need an investment fraud lawyer who is ready and able to take your case to arbitration or court if necessary. You want a lawyer who isn’t afraid to go after companies and people who commit fraud against innocent investors. You want to work with a firm that has done a lot of these kinds of cases before.
Our lawyers for investment fraud have not only taken cases to arbitration and court for investors, but we have also spent many years defending high-dollar brokerage firms and investment companies. This means that we know more than anyone else about how these companies work. This helps our clients, because we can often predict the legal arguments the defendants will use and be ready to counter them.
Still have questions? Contact Our New York Investment Fraud Lawyer Today.
Simply give us a call at 855.453.8605 to set up a no-cost consultation with one of our investment fraud attorneys. We can help answer any questions you may have and discuss possible actions to take. Don’t wait, call Wolper Law Firm today.