Category: Securities Investigations

Futures Fraud and How To Avoid It

What is Futures Trading?

Futures trading is a formal agreement between parties to buy or sell a particular commodity at a certain price and at a specific point in time. The trading can be done with a number of different commodities: precious metals (i.e., silver or gold), petroleum products (i.e., crude oil and unleaded gas), foreign currency (i.e., Euros, Yen, or Deutschmarks), and agricultural products (i.e., corn, soybeans, or cattle). This type of trading is considered high-risk trading and is best suited for experienced investors who are willing to potentially risk losing their entire investment. For this reason, it’s always best to confer with a knowledgeable investor and do research before agreeing to any trading activity and exposing yourself to potential futures fraud.

What is Futures Fraud?

Futures fraud occurs when the party selling the commodity (e.g., commodity broker, financial advisor, or other third-party) engages in illegal activities or practices while trading futures to investors. Illegal activities often involved in futures fraud can include trading without the investor’s consent, false statements about the risk or value of the investment, withholding information from the investor on purpose (nondisclosure), trading on the investor account for commissions without regard for the investor, and using the investor’s assets for anything other than the stated purpose.

What Are Some Warning Signs of Futures Fraud?

The following are some common warning signs of potential futures fraud:

  • Investment opportunities that seem too good to be true and get-rich-quick schemes.
  • Promises or guarantees of large profits.
  • Assurances of little or no financial risk in the venture.
  • Claims of currency being traded in an “Interbank Market,” which can refer to a collection of transactions between banks and investment banks.
  • Unsolicited telephone calls about investment opportunities.
  • Requests for urgent transfers of cash to a recipient.


Do You Need A Futures Fraud Lawyer?

If you believe that you are the victim of futures fraud, reach out to Hanley Law and we can examine your case and determine the best course of action. Hanley Law has the experience required to help you receive the best possible outcome.

What is Securities Arbitration?

Securities Arbitration is the process, which takes place following a dispute with a broker or dealer. Prior to arbitration, the investor has determined that the broker engaged in some form of wrongdoing, or otherwise negligent action that resulted in a loss. Depending on the amount of the claim, the investor may or may not have to appear before an arbitrator or group of arbitrators. Arbitration is an alternative to settling in court and is often the preferred method of dispute resolution because it is typically faster and less expensive.

While typically a contract between a firm and investor is what provides ground for arbitration, the absence of a contractual agreement does not mean that the dispute cannot be settled through arbitration. If the broker or firm is registered with the Financial Industry Regulatory Authority, they are bound to FINRAs procedural guidelines, which include the duty to participate in arbitration when a conflict arises.

Arbitration is NOT an investor complaint. If you want to make FINRA aware of any suspicious activity then you should file an investor complaint. Arbitration is similar to a court case, with formal proceedings but for the reasons stated above is a simpler and quicker alternative to litigation. If a claim is under $50,000 then the dispute can be settled through what is known as “Simplified Arbitration”. In this scenario, parties provide case materials, which are reviewed by an arbitrator; this does not require parties to appear in person. For cases involving larger sums, arbitration takes place in-person and is reviewed by a panel of up to 3 arbitrators.

To initiate an arbitration, the investor must submit what is known as a “Statement of Claim”. The statement of claim must be articulate and while there is no standardized format, following the format of a suit in court is effective. The statement of claim should include all the pertinent information that the arbitrator(s) need to make an intelligent decision. This included the nature of the dispute, any background information, dates, types of securities at hand, names of the parties involved, the kind of transactions that took place and the damages sought.

Following the statement of claim, the respondents must answer to the allegations. This must also be detailed and simple denial will not suffice. At this point in time the respondent can file a counter-claim against the investor or a 3rd party involved. Once the submission of facts from either side is received by FINRA, a hearing location is chosen. Before the hearing is a discover period, where documentation is provided and exchanged amongst parties involved and FINRA officials. This stage is a window of opportunity for the assertive attorney as it is the opportunity to obtain any and all relevant information from the other party prior to the hearing. Often, the persistence of a dedicated attorney during the prehearing discovery phase can result in a favorable verdict for their client.

The hearing itself is scheduled in advance and follows a similar format to a case in court. Witnesses are interviewed, cross-examined and evidence is produced. A series of questions are asked and there are multiple stages before the process is concluded. The arbitrators will determine what awards are served usually within 30 days of the last hearing. The award will include the basic facts of the dispute but does not have to provide justification or rationale behind the actual dollar amount awarded. The opportunity to appeal a decision exists on the state and federal level but it is rarely ever successful.

The Hanley Law is a Naples, Florida based firm who have an extensive track record of successfully securing awards for their clients. The arbitration process is complex and difficult to navigate without the guidance and advocacy that skilled attorneys can provide. Hanley Law offers a free case evaluation to determine the best course of action for you.

SEC Issues Investor Bulletin: Opening an Options Account

The SEC’s Office of Investor Education issued an investor bulletin to assist individuals in understanding what to expect when opening an options trading account with a broker-dealer.

Prior to trading options, the broker must approve the client’s brokerage account for options trading. In order to be approved for options trading, the client will need to complete the broker’s options agreement. In an options agreement, the client will provide information that will assist the broker in understanding the client’s knowledge of options and trading strategies, the client’s general investing knowledge and the client’s ability to bear the risks of options trading. Based on the information provided by the client, the broker will determine whether options trading is suitable, and if so, what type of options trading is appropriate.

The SEC identified the information that the client will need to provide in an options agreement to include:

  1. Investment Objectives such as capital preservation, income, growth, or speculation;
    2. Trading Experience;
    3. Personal Financial Information such as liquid net worth, total net worth, annual income and employment information; and
    4. The types of options an individual is interested in trading.

The information the client provides to the brokerage firms allows the firm to determine which option trading levels, if any, the client qualifies to trade in his or her account. The trading levels determine the types of options trades which may be executed in the client’s account. Broker-dealers typically offer 5 levels of option trading which represent varying degrees of risk. Level 1 often represents the lowest degree of risk, while level 5 generally represents the greatest level of risk. The types of options trading strategies and the level of risks varies between brokerage firms. Clients may request their brokerage firm to provide a list and description of each options trading level it makes available to its customers.

The SEC and FINRA rules require brokers to provide disclosures to all potential options investors. The disclosures contain basic information about the types of options and examples regarding risks associated with various options and options trading strategies. Individuals should read this information carefully before trading options.

If you have suffered investment losses as a result of your broker’s or advisor’s options trading strategy, please contact the Hanley Law to explore your legal rights. The Hanley Law is dedicated to helping investors who have been victims of securities and commodities fraud. If you have lost money as a result of options trading, you may be able to recover your financial losses. Contact us today toll free at (239) 649-0050 for a complimentary initial consultation.

SEC Issues Investor Bulletin: An Introduction to Options

The SEC’s Office of Investor Education recently issued an investor bulletin aimed at educating investors about the basics of options trading. Options trading may occur in a several securities marketplaces, and may also involve a diverse range of products, from stocks to foreign currencies. The SEC’s Investor Bulletin titled “An Introduction to Options” focuses on the basics of trading listed stock options.

Options are contracts that allow the owner to buy or sell an underlying asset at a fixed price on or before a specified future date. Options derive their value from the underlying assets. The underlying assets may be stocks, stock indexes, exchange traded funds, fixed income products, foreign currencies or commodities. Additionally, option contracts trade in various securities marketplaces between a variety of market participants, including institutional investors, professional traders and individual investors. Options trades can be for a single contract or for several contracts.

Options trading uses terminology that investors should understand before buying or selling options. The SEC listed some basic terminology below that investors should be familiar with:

  • “Call and “Put”: A call is a type of option contract. A call option is a contract that affords the buyer the right to buy shares of an underlying stock at the strike price during a specific period of time. Alternatively, the seller of the call option is required to sell the shares to the buyer of the call option who exercises his or her option to buy on or before the expiration date. A put option is a contract that affords the buyer the right to sell shares of an underlying stock at the strike price for a specified period of time. Conversely, the seller of the put option is obligated to buy those shares from the buyer of the put option who exercises his or her option to sell on or before the expiration date.
  • “At-the-money”: Indicates that the strike price and the actual price are the same.
  • Exercise: When a buyer invokes his or her right to buy or sell the underlying security, they are “exercising” the right.
  • Assignment: When a buyer exercises his or her right under an option contract, the seller of the option contract receives a notice called an assignment notifying the seller that he or she must fulfill the obligation to buy or sell the underlying stock at the strike price.
  • Holder: The buyer of an options contract is referred to as the “holder” of the contract.
  • Writer: The seller of an options contract is referred to as the “writer” of the contract.

The basics of how options transactions operate are explained below. Many options contracts and trading strategies that are utilized are actually much more complex. However, the SEC provided the following information to investors so that potential investors have a basic idea of how transactions occur.

  • Market Participants: There are generally four (4) market participants in options trading- the buyer of calls; seller of calls; buyers of puts; and sellers of puts.
  • Opening a Position: When you buy or write a new options contract, you are establishing an open position. The open position will then be matched with a buyer or seller on the other side of the contract.
  • Closing a Position: If you hold an options contract or have written an options contract, but then want to get out of the contract, you can close your position, which means either selling the same option you bought if you are a holder or buying the same option contract you sold if you are a writer.

There are several risks associated with trading options. Investors should be aware that it is possible to lose all of your initial investment, and sometimes more. Below is a list of risks the SEC has identified:

  • Option holders risk losing the entire premium paid to purchase the option. If a holder’s option expires “out-of-the-money” the entire premium will be lost.
  • Option writers may carry an even greater level of risk because certain types of options contracts may expose writers to unlimited potential losses.
  • Other risks associated with trading options include market risks because extreme market volatility near an expiration date could cause price changes that result in the option expiring worthless.
  • Option traders also have risks relating to the underlying asset. Since options derive their value from an underlying asset, risk factors that impact the price of the underlying asset will also indirectly impact the price and value of the option.

If you have suffered investment losses as a result of your broker’s or advisor’s options trading strategy, please contact the Hanley Law to explore your legal rights. The Hanley Law is dedicated to helping investors who have been victims of securities and commodities fraud. If you have lost money as a result of options trading, you may be able to recover your financial losses. Contact us today toll free at (239) 649-0050 for a complimentary initial consultation.