Red Flags of Securities and Investment Fraud, Scams

Obviously, if you’ve lost all or a major portion of your investment in a relatively short period of time, you should consult a financial misconduct attorney to see whether investment abuse played a role in the loss. But you might avoid a big loss if you take early notice of the signs that a financial professional is untrustworthy or may be seeking to take advantage of you. Here are some things to watch out for:

The broker is seeking your business by claiming an affiliation with your club, congregation, support group, or other group of which you’re a member.

While he may be on the level, some brokers engage in what is known as “affinity fraud,” scamming folks by appealing to their affinity for members of a particular group. For example, several recently-reported Ponzi schemes have involved large numbers of Muslim, Orthodox Jewish, and Amish investors being defrauded by trusted members of their own religious communities.

Information on your new account form is incorrect.

A broker who can’t be trusted often will list incorrect information on your opening account documents. For example, he might say that you’ve traded options when you haven’t, that you have ten years experience in the market when all you’ve done is allocate the funds in your 401k account, or that you’re willing to invest aggressively and take high risk when you actually told him you want safe, conservative investments.

The broker pressures you for an immediate decision. 

No reputable broker does this. If your broker insists you must “buy today” or a deal may be missed, she may be trying to meet her monthly sales quota or she may be pressuring you into acting without being fully informed.

The broker claims to have “inside information” or private knowledge that he’s sharing with only a few people.

Realistically ask yourself why the broker would think you should be one of the fortunate chosen few. Then realize you probably aren’t.

The broker guarantees a certain result or promises you a return that sounds too good be true.

Brokers are not allowed to make guarantees. And when it comes to investing, the most important guide to remember is that if something sounds too good to be true, you should assume it isn’t true.

The broker refuses to give you copies of the forms and agreements that are completed when you open your account.

If this happens, you definitely should consider going elsewhere.

You’re finding discrepancies in account statements or are not receiving documents you should be receiving.

Contact your broker and ask about it. If she blames computer glitches, tells you to ignore the mistakes, or gives you any other questionable answer, call the branch manager and ask for confirmation of what you’ve been told. If the branch manager also happens to be your broker, talk to someone outside the branch office, such as a Regional Manager or someone in the firm’s Compliance Department.

The broker has stopped calling.

Perhaps he doesn’t want you to pay close attention to your investments because he’s draining your account.

The broker fails to return your call.

She may want to avoid your questions and concerns while she continues to profit at your expense.

The broker calls you too often.

He may be churning your account.

You have been contacted by management personnel from your broker’s office.

They may say they are doing a routine audit, or just checking to see if you’re happy with the way your account is being handled, but their call or letter most likely was prompted by some particular type of activity they noticed in your account, such as frequent or short-term trading or the existence of a high margin balance. Follow up to find out what facts led to your being contacted and why those facts were deemed potentially important to your broker’s supervisors.

We hope these tips will enable you to be more alert and effective in monitoring your account. But if you believe you may already be a victim of investment abuse, please contact the financial misconduct lawyers at McCarthy, Lebit, Crystal & Liffman. Our attorneys know the financial services industry from the inside out and are skilled at determining whether or not your investment losses are due to financial fraud or sales improprieties.  Call us today at (866) 932-1295.