Have You Been a Victim of Securities Fraud?

How do you know if you have been the victim of securities fraud?  The answer to this question usually begins with the feeling that something is not right with your investments.  Maybe your broker is all of a sudden dodging your calls or having their subordinate answer their calls.  Perhaps your broker told you that an investment would become payable to you at a certain point and despite the fact that the time for payment has long come and past, nothing seems to have happened.  Its often hard to believe that the person you trusted with your savings or retirement has lied and let you down.

Securities fraud describes a whole genera of inappropriate investment activity.  In some instances the broker may sell a customer a security by falsely representing the properties of the security including its terms by either written or oral statements.  The broker may also provide misleading marketing materials in connection with the sales pitch.  Under the securities laws misrepresentations or omissions of fact are material if a reasonable investor might have considered the fact important in the making of the investment decision.  Thus, brokers have a duty to truthfully disclose all material information to an investor in order to evaluate the recommendation being made.

Other types of securities frauds involve some form of broker theft such as in cases of churning (excessive trading) or Ponzi schemes.  In the case of churning, the broker engages in investment trading activity that is excessive and serves little useful purpose and is conducted solely to generate commissions for the broker.  While Ponzi schemes involve the diverting of securities funds meant to be used for a certain investment purpose.  Instead the funds are diverted from the purpose represented to the investor to another purpose such as a different investment vehicle or straight into the Ponzi schemer’s pocket.

Unfortunately, securities fraud happens all the time.  Some estimates have found that the costs of financial fraud causes Americans to lose over $50 billion a year.  Studies, including the Financial Fraud and Fraud Susceptibility in the United States, have shown that many Americans cannot identify classic signs of fraud.  One fraud danger sign that many Americans could not spot was what a reasonable rate of return on a investment would be.  The study found that over 4 in 10 people found a annual return of 110% or a “fully guaranteed” investment appealing.  However, such grandiose investment guarantees represent a securities fraud “red flag.”  Thus, many Americans remain susceptible to fraudulent securities sales pitches.