Securities Fraud is a Serious Problem
The U.S. Securities and Exchange Commission (SEC) reported 356 securities and investment fraud offenders in 2018.
Unsophisticated and elderly investors are particularly vulnerable to fraud and misrepresentation by brokerage houses and brokers.
Some 92.6 percent of offenders were U.S. citizens, and nearly 82 percent had no prior criminal history. The 230 offenders received sentences averaging 52 months in federal prison. They inflicted a median loss of $2.11 million, with 36 percent of securities fraud cases costing more than $3.5 million.
The median value of financial fraud was $2.58 million in 2018.
The rate of fraud is down almost 20 percent since 2013 but has ticked up in recent years.
In 2013, the SEC reported 282 offenders of securities and investment fraud laws. That number reached a low of 218 three years ago in 2015, and has risen slightly since.
In 2016, the SEC reported 221 offenders, nine less than in 2017. The number of offenders was down by 18.4 percent from 2013 to 2017.
In 2018, the SEC reported 213 offenders.
The top five U.S. federal court districts dealing with those accused of offending securities and investment fraud in 2018, and the number of offenders in each were:
- Southern District of New York, with 19 offenders
- Central District of California, with 17 offenders
- Eastern District of New York, with 17 offenders
- Southern District of Florida, with 16 offenders
- Northern District of Illinois, with 13 offenders
About 91 percent of those accused of securities and investment fraud received an average federal prison sentence of 52 months.
Examples of Investment Broker and Financial Advisor Fraud
Examples of Investment Broker and Financial Advisor Fraud
- High-yield investment fraud
- Ponzi and pyramid schemes
- Advanced fee schemes
- Foreign currency fraud
- Broker embezzlement
- Hedge fund-related fraud
- Late day trading
High-yield investment fraud typically involves promises of high rates of return with nearly no risk to investors. The fraudulent investment schemes often involve securities, precious metals, commodities and real estate. The offers generally are unsolicited, and often come via telephone, e-mail or a personal interaction.
Ponzi and pyramid schemes use new investors’ money to pay high returns promised to early investors, to make the scheme appear legitimate. The early investors initially receive the returns promised – so long as the scheme continues to grow. When too few new investors are available and existing investors demand a return of their money, the schemes usually fall apart.
Advance fee schemes are relatively simple. The schemers encourage investors to pay a fee to invest in a sure thing. The problem is, there is no actual investment to be made. After victims send their fees, they never hear back about the results of their dubious investments. The schemes rely on a high volume of relatively small investments, hoping the victims, ultimately, will give up hope of receiving any returns.
Laws That Protect Investors From Securities Fraud
Investors are afforded protection under both federal and state securities laws. At the federal level, the Securities Exchange Act of 1934 (15 U.S.C. § 78a et seq.) and Rule 10b-5 protect investors against deceptive and manipulative acts in the purchase or sale of securities. Rule 10b-5 makes it unlawful to employ a device or scheme to defraud, to make any untrue statement of material fact or omit to state a material fact not misleading, or to engage in any practice that would constitute a fraud.
Similarly, most states have enacted comprehensive statutes to protect investors, known as “blue sky” laws.
In addition, the SEC and Financial Industry Regulatory Authority (FINRA) have set forth conduct rules and regulations to protect investors. Violation of these rules and regulations may serve as compelling evidence that your brokerage firm or financial advisor has engaged in actionable misconduct.
financial advisor from engaging in any of the following activity:
1. Recommending to a customer the purchase or sale of a security that is unsuitable given the customer’s age, financial situation, investment objective and investment experience
2. Investment in a particular type of security may be unsuitable, or the amount or frequency of transactions may be excessive and therefore unsuitable for a given customer
3. Purchasing or selling securities in a customer’s account without first contacting the customer and receiving the customer’s authorization to make the sale or purchase, unless the broker has received from the customer written discretionary authority to effect transactions in the account or the broker was given discretion as to price and time
4. Switching a customer from one mutual fund to another when there is no legitimate investment purpose for the switch
5. Misrepresenting or failing to disclose material facts concerning an investment. Examples of information that may be considered material and that should be accurately presented include: the risks of investing in a particular security; the charges or fees involved; company financial information; and technical or analytical information, like bond ratings
6. Charging a customer excessive markups, markdowns or commissions on the purchase or sale of securities
7. Guaranteeing customers that they will not lose money on a particular securities transaction, making specific price predictions or agreeing to share in any losses in the customer’s account
4. Switching a customer from one mutual fund to another when there is no legitimate investment purpose for the switch
8. Private securities transactions between a broker and a customer that may violate FINRA rules, particularly where the transactions are done without the knowledge and permission of the sales representative’s firm
9. “Trading ahead,” which involves placing an order for the firm’s account before entering a customer’s limit order, without having a valid exception
10. Failure by a market maker to display a customer limit order in its published quotes, without a valid exception
11. Purchasing or selling a security while in possession of material, non-public information about an issuer
What an Investor Should Look For in Broker Negligence and Fraud
The securities fraud attorneys at the Wolper Law Firm have litigated hundreds of cases and not one of them is the same. However, there are certain aspects to each case that may have similar characteristics.
Before we can determine whether there might have been some element of investment fraud or negligence in your case, we need to review the facts of your particular situation carefully. Every case is different, and the specific facts determine how and when the investor protection laws apply.
However, to get a general idea of whether you might have a case against your broker for investment fraud or negligence, there are some questions you can ask yourself.
Have you witnessed or experienced any of these common signs of broker fraud:
Your investment portfolio suffered sudden, substantial losses, or you noticed unusual or mysterious withdrawals/losses in your portfolio
You observed an excessive number of trades in your investment portfolio — or trades you never knew about and did not authorize
Your broker was not paying attention to your portfolio and seemed careless or lazy when handling your investments
You have since learned that your broker/advisor might have lied, omitted facts, made misleading statements, or failed to fully disclose a risk or a conflict of interest
Your broker was not paying attention to your portfolio and seemed careless or lazy when handling your investments
Broker and financial advisor investment fraud and negligence can devastate retirement accounts and family assets.
The experienced securities and investment fraud attorneys at the Wolper Law Firm have decades of combined experience helping victims regain lost assets against brokers and brokerage firms by proving broker fraud. When faced with potential investment fraud, experienced legal help is essential in these complex cases. Let the Wolper Law Firm take an aggressive stand for the money you’re owed. We offer free initial consultations, so there is no downside by contacting our office and get answers to your questions.
