This is a comprehensive guide to understanding investment fraud in America.
Investment fraud is a real and serious problem, and it happens more than you realize.
According to the latest data from the Federal Trade Commission, from Q1-Q3 in 2022 there have been nearly 80 thousand individual investors who have reported being a victim of investment-related fraud. 74% of these individuals reported losses. It is estimated, at this time, that over $2.6 billion have been lost to investment fraud between Q1-Q3 in 2022 in America.
Not only that but in imposter scams alone, there was an additional $2 billion in lost investments among over 500 million investors.
Where there is money, there will be investment fraud.
In this guide you’ll learn:
- What investment fraud is
- The types of investment fraud
- How to identify if you are a victim of investment fraud
- How to protect your rights
- Actions you can take as an investor
So if you are ready to learn more about investment fraud, you have landed on the right page.
Let’s get started.
If you have been tricked into investing in a fraudulent scheme, you may have lost money to the fraudster. This can be an incredibly difficult and disheartening experience to go through, but it is important to remember that you are not alone.
Consult a Highly-Experienced and Dedicated Investment Fraud Attorney to learn how to protect your rights if you suspect your broker or financial advisor of fraud.
Financial Advisor & Broker Fraud & Scams
Hiring a reputable investment advisor or broker to manage your investments is frequently a wise decision. You did things right by hiring someone you thought you could trust, but you still lost money. Knowing more about types of investment frauds could help you understand what you need to do.
Brokers and advisors are regulated by the Financial Industry Regulatory Authority (FINRA) and are legally obligated to consider their client’s best interests when making investment decisions.
When an advisor or broker misleads their client, fails to disclose important information, or recommends investments that are a bad fit for their client’s goals and needs, this could be considered investment fraud.
If you have lost money due to investment fraud by a stockbroker or advisor, the easiest way to know if you have a case is to call our office at 800-732-2889.
A skilled investment loss attorney could investigate your situation and determine if you are the victim of investment fraud. At the Law Offices of Robert Wayne Peace, P.A., we devote our extensive experience and advanced skill to protecting investors who fell prey to unscrupulous investment professionals. Contact us today to learn more about how we can help hold your financial advisors accountable for fraud or malpractice.
Investment Fraud is More Pervasive Than You Think
Your story is probably like many others. You have worked hard and saved money to plan for your future. So instead of “playing the market” yourself, you engage a financial advisor to help protect your nest egg.
You probably felt at ease with your decision to hire a financial advisor. Your financial advisor is a fiduciary, and, accordingly, they owe you a duty of care. This is someone you believe you can trust with your savings and rely on to make the right decisions for you and your family.
Most financial advisors are honest, hardworking, and caring professionals who try their best for their clients. Notwithstanding their strict ethical rules, some investment advisors cannot resist the temptation of making money the easy way.
How Do You Know If You’re the Victim of Some Type of Investment Fraud?
Everyone knows the old saying that ‘if it’s too good to be true, it probably is.’ This adage still pertains to investment opportunities even today. Many fraudulent schemes perpetrated by dishonest financial advisors lure unsuspecting investors into their trap with some type of ‘get rich quick’ scheme.
FINRA, the Financial Industry Regulatory Authority, provides a recovery checklist for victims of investment fraud. It is strongly encouraged to talk to a investment fraud attorney first to know your rights before you make a decision.
Below are the five types of investment fraud commonly employed by shady financial advisors.
Promissory Note Fraud
If you have ever bought a home or a car and financed the transaction, you probably understand the significance of a promissory note. Buying and selling promissory notes is a sophisticated investment strategy. Your advisor must adhere to the strict regulations enforced by the U.S. Securities and Exchange Commission (SEC) when transferring promissory notes.
Promissory notes might seem like a worthwhile investment. The deal allows you to hold the note and receive interest payments as well as repayments on the principal. You might have purchased the note for a discount, which increased your potential return.
Investing in promissory notes, especially short-term notes, is extremely risky. Short-term notes offer higher than market interest rates and the allure of making a substantial amount of money quickly.
Promissory note scams prove to cost private investors millions of dollars. The seller of the note has no responsibility to register short-term notes with the SEC. Therefore, small investors cannot research the viability of these notes, the historical performance of similar notes, and whether the dealer has a good reputation.
Investors accept some risk. However, investors could get wiped out if they invest in promissory notes without proper guidance from a reputable financial advisor. Small or retail investors may not have any recourse against the party who defaults on a promissory note.
They have other options, however. Private investors like you could file a lawsuit against your financial advisor for fraud if they misrepresented or lied about the investment’s inherent risk, its return, or any other material fact concerning the promissory note. Proving investment fraud is difficult. That is why you need a strong legal advocate for individual investors on your side to pursue a claim on your behalf.
Ponzi and Pyramid Schemes
Ponzi schemes always fail. Yet, people still use them as a way to make easy money. Ponzi schemes always fail because the person running the scam will always run out of money.
The average investor might not identify a Ponzi scheme if it is well disguised. However, suppose you have given money to someone to invest, and there are no underlying assets in the fund, or you are asked to recruit others to join in the initial investment. In that case, you might be unwittingly involved in a Ponzi scheme.
Pyramid or multi-tiered marketing strategies are a similar investment tactic. Pyramid schemes are not inherently unlawful like Ponzi schemes. Notwithstanding, participants in multi-tiered marketing schemes often get swindled out of their money because they continue to invest, with little or no return, based on a promise that they will reach the top of the pyramid.
Like Ponzi schemes, a fraudulent pyramid scheme offers no legitimate underlying investment. On the other hand, some legitimate multi-tiered marketing programs sell consumer goods or other products.
Pyramid schemes are not investment groups or pooled funds. Pyramid schemes operate on the premise you make money based on the number of participants you recruit.
Suppose you or a loved one believes they have lost money because an investment advisor conned you into thinking that you could earn a good return by investing in a strategy that does not involve assets. In that case, you should talk with an investment attorney right away.
Investing in Real Estate
In America, we are conditioned to believe that the real estate market always goes up. As a result, real estate investing could be a vital component of a diversified portfolio. However, flipping houses, buying distressed properties, or becoming a landlord is not for everyone.
Unprepared people could lose their shirts because of bad real estate investments. They have bad tenants, underestimate the rehab costs of a home, or overestimate their return when trying to sell and lose their investment. Moreover, they might end up in debt after making a bad deal.
Buying and flipping houses are not the only way to make a living in real estate. Beware if your financial advisor asks you to participate in financing real estate deals that do not involve banks. This is known as “hard-money lending.”
A hard-money lender lends money to a real estate speculator to expect the lender to make a massive profit in a short span. The only recourse you have is to seize the property if the buyer defaults. The property might not be worth the money you lent if it exists at all.
Change is inevitable in the free market. Those changes are hard to understand for many of us, especially when the change involves trending away from paper money to cryptocurrency. Cryptocurrency such as BitCoin has garnered significant press recently because investors have made millions by “mining” the funds. New cryptocurrencies pop up all over the world all of the time, and investors are ready to jump on the bandwagon.
Investing in cryptocurrencies or related products comes with massive risk. Right now, cryptocurrency is unregulated. The lack of regulation allows people to take advantage of the uninitiated.
One of the first rules of investing is to invest in what you know. If you do not know cryptocurrency, then stay away. A financial advisor should not ask you to invest in any cryptocurrency unless you understand what you are doing. It is too easy to go broke by speculating on unregulated and mysterious investments.
Investments Advertised Through Social Media
Online social media networks are rife with fraudulent investment schemes. Using the internet to scam people is simple. Beware of investment advisors who approach you through social media with hot investments.
Your investment advisor could be a contact on social media. However, beware if your advisor uses social media platforms to publicize investments that seem to be too good to be true. High rates of return with little risk, use of off-shore accounts, and attempts to recruit family and friends to join the investment are definite clues that the investment is bogus.
What Happens if There is No Investment Fraud?
Your financial advisor or broker is liable for malpractice. Therefore, if you cannot find evidence of fraud, but you lost money, then you need to consider that your advisor carelessly handled your money.
Malpractice among financial advisors is on the rise.
Here are some ways financial advisors commit malpractice:
- Your advisor did not consider your specific needs and situation when executing an investment strategy;
- Your advisor failed to diversify your holdings. Diversification protects your entire portfolio against fluctuations in the market;
- Your advisor reinvests your money without justification. Doing this generates commissions for your advisor and is rarely in your best interest;
- Your advisor has you on a margin account unnecessarily. You might want to dedicate a portion of your portfolio toward higher-risk strategies and use a margin account to speculate. Borrowing money to invest could be dangerous and could send you deep into debt; and
- Your advisor failed to act when doing so was in your best interest. Your advisor has a duty to move your money if doing so will preserve your capital; failing to do so when the reasonable financial advisor should is malpractice.
If you believe your advisor acted negligently when handling your account, you should talk with an aggressive securities attorney right away.
Understand That You Have Rights if You Are a Victim of Any Type of Investment Fraud
Financial advisors take advantage of people who lack sophistication when it comes to investing. Older people, especially, are prone to losing money when investing if they aren’t careful. We are here to make things right for you.
The investment fraud lawyers with the Law Offices of Robert Wayne Pearce, P.A. have an international reputation as attorneys who fight for their clients and get results. We have the resources to investigate your situation thoroughly and find the best course of action for you. Call us today at 561-338-0037 or complete our contact form on our website to schedule a consultation.