Securities Arbitration and Litigation Attorneys
Securities Fraud is widespread and as an investor, it is essential to be aware of the most common types of fraud so you can take preventative measures, maximize your gains and reduce the possibility of taking a loss. Not all types of fraud are the result of premeditated criminal schemes, though a lot of them are. Professionals in the securities industry are trained in making sound investments so even if they didn’t have the intention of compromising your investment, in the event they have or do in the future, those individuals can still be held responsible. Similar to the medical profession, a doctor who commits malpractice may not have had the intention of harming the patient, but if they do they can be held responsible in a civil court and even a criminal court if laws were violated in the process. This logic is also applicable to investment bankers, firms, stock brokers,etc.
The most common types of fraud are propagated by individuals who practice outright deception and those who are incompetent/irresponsible. Whether your losses are a result of reckless practices or flat out lies, the implications for you don’t vary as much as they do for the individual you trusted with your hard earned money. In either case, you can seek to recover losses suffered.
Investments Compromised due to Negligence
One of the most common types of fraud occurs when an inappropriate investment is made, this is related to the investors status and is usually a high risk investment. For example, a particularly high risk investment would not be right for a person who is retired or an investor with a conservative track record.
Another form of fraud is when the firm fails to perform their fiduciary duty to the investor, this is called failure to perform due diligence and commonly this results in the firm investing someones funds in a company they didn’t properly research.
Additionally, failure to diversify an investors portfolio is considered an inappropriate practice. Over concentrating funds in one investment is a poor practice that can result in losses for the investor.
Brokers Knowingly Compromising Your Investment
There a number of circumstances when brokers knowingly compromise your investment for their own personal gain. There are a wide range of practices from over-trading to selling penny stocks that are considered fraud. Excessive trading is when a broker trades with the primary intention of profiting from the commission they make as a result of the trade, this is called Churning and is illegal. To prove churning, attorneys will look at excessive activity, that is quantifiable by turnover rate and cost-equity ratio.
Misrepresentation occurs when a stockbroker fails to disclose pertinent information to an investor, which interferes with their ability to make a sound decision/ investment. Omitting facts or details about a company is a common cause of investment loss.
Investors who promise guaranteed returns on investments or claim that an investment will offer high returns with little to no risks are committing fraud. Shy away from brokers or firms that guarantee a return , usually one that is just too good to be true.
Finally, trading without permission of the investor is considered unauthorized trading and is also a poor practice. In certain circumstances, the broker does have permission to trade without consulting the investor only if they receiver prior authorization, these accounts are called discretionary accounts.
If you’ve suffered losses due to fraudulent practices, contact the The Hanley Law, who are offering free case evaluations. Hanley Law have experience recovering losses for sole investors and in class actions suits against major investment firms.