Category: Securities Information

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.

Securities Attorneys Representing Clients in Florida and Nationwide

Securities are the financial instruments that represent a form of ownership or stake in a company. Securities allow individuals to own asset(s) without taking possession of them. Because of this, securities can be exchanged easily. In addition to this, pricing securities is not difficult which is why they are a strong indicator of the value of the asset. In order to purchase or sell securities, a trader must obtain a license to ensure they have been trained to follow a set of laws established by the SEC (Securities and Exchange Commission). Despite the regulatory agencies and laws in effect, fraud is still widespread. Fraud is an “umbrella term” that encompasses a wide range of deceptive and manipulative practices utilized by perpetrators to profit at the expense of the investor(s).

Types of securities:

Bonds, which can be issued by corporations or the government (Federal/Local).

A corporate bond is essentially a loan to a corporate entity in which you receive interest annually until the loan is paid off. Corporate bonds offer stability and are considered safer than stock in a company. Bondholders do not get dividends or voting rights which is why in the long haul, stocks have the potential for larger returns.

A bond issued by the federal government is very low in terms of risk and most frequently issued by the US Treasury. The potential for return is significantly lower than stocks or bonds issued by corporate entities.

A municipal bond is issued by state and local government. These include a city, county, town or school district. Typically,the rate of interest is lower than that of a bond issued by a corporation.

Mutual Funds , which are composed of a variety of securities.

A mutual fund can be stock options, bonds or both. In most cases, the investment is placed in a pool with monies from other investors. The fund is managed by an investment company, who selects the securities. The risk of the investment is reduced due to the diversity of the portfolio.

Stock Options

The right to purchase or sell stock in a company, at a specific rate for a window of time. The right to purchase stock is referred to as a call, the right to sell is called a “put”.

Futures Option

A futures contract is an agreement to sell a certain security in the future for a pre-determined rate. An option is the right to purchase or sell a contract at a certain price for a specified period of time. Since it used to reduce risk, a futures option is utilized by many investors.

History of Regulation

The regulation of Securities in the United States dates back to the 1930’s when the New Deal was passed. In the1930’s & 40’s, five major laws were put into place by the Federal Government.

  • Securities Act of 1933 a regulation on the distribution of new securities
  • Securities Exchange Act of 1934- regulation of trading securities , brokers & exchanges
  • Trust Indenture Act of 1939- regulation of debt securities
  • Investment Company Act of 1940- regulating mutual funds
  • Investment Advisers Act of 1940- regulation of investment advisers

Since the 1940’s a number of amendments have been made to these regulations in order to promote fair trade and enforce illegitimate/illegal practices. These major laws also serve to protect investors, ensuring they are adequately informed at the time of purchase.

While many measures are in place to reduce risk, it is still inherent, especially when dealing with non-governmental entities. Educating yourself on the common practices of Fraudsters can help you identify red flags when it comes time to invest your hard earned money. While often, fraudsters target vulnerable investors, saavy, educated people are still victimized.

Florida Based Law Firm Hanley Law have represented thousands of clients nationwide and represent individual investors in claims for securities and stockbroker misconduct. If you’ve suffered monetary loss due to misconduct or believe your investment was mishandled, contact us for a Free Case Evaluation.