Securities Fraud

Common Types of Securities Fraud

The Federal Bureau of Investigation is the entity responsible for cracking down on illegal activity related to fraudulent schemes and fraudulent activities. There is a wide range of securities fraud claims that involve a variety of financial transactions. According to the FBI, some of the most common forms of securities fraud are pyramid schemes, Ponzi schemes, advance fee schemes, and market manipulation fraud. 

In its report, the FBI notes that some of these schemes are implemented by financial professionals, but others are conducted by ordinary individuals seeking to take advantage of people.

Broker Misconduct

Although there are plenty of ethical brokers out there, others choose to break their ethical and legal obligations towards customers, exposing their clients to loss and the broker and his/her brokerage firm to damage liability. Some of the most common examples of this type of fraud are margin trading, misleading illustration, and unsuitable investments.

Equity Indexed Annuities

Before an agent talks you into buying a new product, he or she should be upfront about the benefits and claims associated with this product. Unfortunately, too many investors purchase indexed annuities with the belief that they cannot lose their principal. Equity indexed annuities are often terribly complex products with many moving parts. Of particular importance is the ability to access the amount invested. If you bought an equity indexed annuity and it’s not working as you expected, it’s possible that you could have a legal claim for recovery.

Hedge Fund Abuses

Hedge funds are complex vehicles that may lead investors to believe they have little protection. Sometimes a hedge fund manager may be dishonest about his or her qualifications or background, past situations involving theft from hedge funds, or performance of the funds.

Investment Advisor Misconduct

Investment advisors are, by law, fiduciaries. In plain English, that means they must put their clients’ interests ahead of their own. But, as with brokers, investment advisers can violate their obligations and can be liable for recommending the purchase of inappropriate securities, or for outright fraud.

Whenever an adviser or broker shares an investment opportunity with you, all necessary facts must be provided so that you can make an educated decision. You should be able to review financial statements and other documents as needed. Unethical advisors, though, might try to avoid giving you all the facts (including the disclosure of conflicts of interest), and this may qualify as grounds for a claim against this individual, especially if false statements or misleading statements were made.

Improper Outside Money Managers

Deciding which investment firm to work with was likely a process that involved your respecting the company name. That’s why it can be a shock when you learn that the broker has given your business to an outside money manager.  Using outside money managers isn’t automatically wrong, but a broker has an obligation to use the right money manager – one that will trade within your risk tolerance and in line with your investment objective.  Selecting the wrong money manager can expose your broker to liability just as any other unsuitable or inappropriate recommendation would.

Structured Products

Structured products are typically sold based on a possible upside gain potential, and limited downside risk. But a broker who leaves out the significant downsides is doing you a disservice. A broker like this will skip over the fact that these products typically have a lack of liquidity, high market and credit risks, and costly expenses. The “downside protection” may not apply in a catastrophic market environment, when the investor would really want it. If your broker has recommended a product like this to you and it’s an unsuitable or inappropriate investment, you may have grounds for a claim.

Variable Annuities Sales Misconduct

Variable annuities on their own are not terrible products, but they are not the right fit for everyone. A broker who has swayed you to purchase one because of the high commissions he/she will receive, and without regard to the high internal expenses and lack of liquidity you’ll experience, could be looking at a sales abuse claim.

Insider Trading

When insider trading occurs, individuals trade stocks based on information that is not readily available to the general public. For example, they may have personal knowledge of a company’s business activities. In some cases, insider trading is legal if it meets the rules published by the Securities and Exchange Commission. 

However, if the trade does not meet the provisions of the Securities and Exchange Commission’s rules and guidelines, the transaction is illegal. These suspicious transactions provide unfair advantages to those who have private or confidential information about a stock and therefore open the traders to liability.

I Think I May Be a Victim of Securities Fraud. What Should I Do?

If you believe that you may be a victim of securities fraud, you should meet with a securities fraud lawyer as soon as possible to learn about your legal options.  As a victim of fraud, your claim will likely proceed in arbitration, though it could be filed in federal district court under certain circumstances. Regardless, you should gather all documentation relevant to your potential fraud claim and reach out to a securities fraud law firm.

Will My Claim Go to Court or Arbitration?

Numerous entities may have jurisdiction over securities fraud matters. Whether your claim proceeds through court or goes to arbitration depends on the facts and circumstances of your case. What are your allegations of securities fraud? Who are the actors and accounts involved? How much money did you lose?  Most importantly: what does your contract with your financial advisor say?

With the guidance of an attorney, your case will proceed in the right direction.