Securities fraud, which can also be referred to as investment fraud or stock fraud, is the deceptive practice by an individual or group in the securities markets that typically involves a victim (an investor) losing investment capital due to false or misleading information perpetuated by the perpetrator (the fraudster).
If you’ve been the victim of securities fraud, you may be able to take legal action.
Almost anyone can be a victim of securities fraud. While the elderly and inexperienced investors are frequent targets, even savvy investors can fall prey to securities fraud if they’re not careful.
Perpetrators of securities fraud will often make false or misleading statements in order to persuade investors to buy or sell securities, usually at the benefit of the perpetrator.
If you believe you have been a victim of securities fraud, it is important to take action. Securities fraud is an illegal or unethical activity punishable by law. You may be able to recover your losses by filing a lawsuit against the person or entity who committed the fraud, as well as protect yourself and other investors from future harm. You should consider talking with an investment fraud lawyer to learn more about your legal options.
- Securities Fraud is an illegal and deceptive practice targeting investors to make investment decisions based on false or misleading information.
- There are many different perpetrators of securities fraud, and almost anyone can be a victim.
- Commons forms of securities fraud include but are not limited to: High Yield Investment Frauds, Ponzi & Pyramid Schemes, Advance Fee Schemes, Misconduct by an Investment Advisor, and Structured Notes.
- There are legal actions you can take if you have been the victim of securities fraud, especially if you’ve suffered substantial investment losses as a result.
The Different Perpetrators of Securities Fraud
There are many different perpetrators of securities fraud, and they all have different motivations. Some may be driven by greed, while others may simply be trying to take advantage of investors. Regardless of their motivations, all perpetrators of securities fraud share one goal: to make money by deception.
Securities fraud can be committed by a single person, such as a stockbroker or a financial advisor. It might also be perpetrated by an organization, such as a brokerage firm, corporation, or investment bank. In these scenarios, the target is usually an unsophisticated investor who is unaware of the fraud being committed.
Independent individuals may also commit securities fraud, such as insider trading or market manipulation. In these cases, the individual investor is usually the perpetrator rather than the victim. Due to the actions of the independent individual, the entire market may be impacted, and other investors may suffer losses as a result.
Unfortunately, the perpetrator of securities fraud may be unknown. This is often the case with internet fraud, where scammers set up fake websites or send out mass emails to trick investors into giving them money.
Anyone can be a perpetrator of securities fraud, and anyone can be a victim.
The best way to protect yourself is to be aware of the different types of securities fraud and to know what red flags to look for.
What are Common Examples of Securities Fraud?
There are many different types of securities fraud, but some are more common than others.
When a broker or investment firm takes your money with the promise of investing it and then uses it for other things, you’ve been a victim of securities fraud. Securities fraud schemes are often characterized by offers of guaranteed returns and low- to no-risk investments.
High-Yield Investment Frauds
These types of securities fraud are often characterized by promises of high returns on investment with little to no risk. They may involve a few different forms of investments, such as securities, commodities, real estate, or other highly-valuable investments.
You can identify these schemes due to their “Too good to be true” offers.
These types of fraud tend to be unsolicited. Perpetrators may elicit investments from investors by internet postings, emails, social media, job boards, or even personal contact. They may also use mass marketing techniques to reach a large number of potential investors at once.
Once the fraudster has received the investment money, they may simply disappear with it or use it to fund their own lifestyle. The investment itself may not even exist.
Ponzi & Pyramid Schemes
These types of securities fraud use the money collected from new investors to pay the high rates of return that were promised to earlier investors in the scheme. Payouts over time give the early impression that the scheme is a legitimate investment.
However, eventually, there are not enough new investors to support the payouts, and the entire scheme collapses. When this happens, the people who invested at the beginning of the scheme often lose all of their money.
In these schemes, the investors were the only source of funding.
Advance Fee Schemes
In these types of securities fraud, the investor is promised a large sum of money if they pay an upfront fee. The fees may be called “commissions”, “processing fees”, or something similar.
The fraudulent organization will often require that the fee be paid in cash, wire transfer, or even cryptocurrency. They may also ask the investor to provide personal information such as bank account numbers or social security numbers.
Once the fee is paid, the fraudulent organization will often disappear and the investor will never receive the promised money.
Other Securities Fraud
In addition to the above list provided by the FBI, at The Law Offices of Robert Wayne Pearce, P.A., we have found that the following types of securities fraud are also common:
Misconduct by an Investment Advisor
By far the most common type of securities fraud that our firm sees is misconduct by an investment advisor or brokers.
Investment advisors or brokers are supposed to act in their clients’ best interests (fiduciary duty), but some advisors put their own interests ahead of their clients. For example, an advisor might recommend that a client invests in a certain stock or mutual fund because it will generate a high commission for the advisor, not because it is a good investment for the client.
Other examples of misconduct by an investment advisor or broker include:
- unsuitable investments for their investor clients;
- a lack of diversification or an “over-concentrated” portfolio;
- conducting transactions in your investment account without authorization;
- misrepresentation or omission of material facts;
- misappropriation of a client’s funds;
- malpractice by a financial advisor;
- excessive purchases and selling of securities, also known as “churning”;
- untimely and unexpected margin calls & forced liquidations;
- and even the theft of a client’s funds.
Structured notes are investments which often combine securities of different asset classes as one investment for a desired risk and return over a period of time. They are complex investments that are often misunderstood by not only investors but the financial advisors who recommend them.
Due to their complexity, it is easy for the terms of the investment to be misrepresented. For example, an advisor might tell their client that a structured note is “risk-free” when, in reality, there is a significant risk of loss.
How to Report Securities Fraud
If you believe that you have been the victim of securities fraud, there are a few things you can do:
- File a complaint with the Financial Industry Regulatory Authority (FINRA).
- File a complaint with the U.S. Securities & Exchange Commission (SEC).
- Contact an experienced securities fraud attorney.
Timely filing of a claim is important in securities fraud cases. For this reason, it is important to act quickly if you believe you have been the victim of securities fraud.
Filing a successful complaint with FINRA or the SEC does not mean that you will automatically receive compensation for your losses. However, it is an important step in the process of recovering your losses.
An experienced securities fraud attorney can help you navigate the process of filing a claim and recovering your losses. Contact The Law Offices of Robert Wayne Pearce, P.A. to schedule a free consultation.
What Legal Actions Can Be Taken if You are a Victim of Securities Fraud?
If you believe that you have been the victim of securities fraud, you do have legal options available to you. You may file a claim with the Securities and Exchange Commission (SEC) or FINRA, or you may file a lawsuit against the responsible party.
Many think filing a claim with the SEC or FINRA may help you recover some of your losses but that rarely happens and when it does investors won’t see any monies for years and then only a fraction of what they lost. There are other options available to you if you have been the victim of securities fraud, and an experienced attorney can help you understand what those are.
Note: If you have significant investment losses and you believe that securities fraud was involved, you need to talk with an experienced securities fraud lawyer as soon as possible.
Being a victim of securities fraud can be a very confusing and difficult experience.
You may not know where to turn or what to do next. The most important thing you can do is seek experienced legal help as soon as possible.
At The Law Offices of Robert Wayne Pearce, P.A., we have successfully represented many investors who have been victims of securities fraud.
To schedule your free confidential consultation, please call us at 561-338-0037 or fill out one of our short contact forms.