Investor Fraud & Losses
Investor Fraud and Losses
The Financial Fraud Research Center estimates that annual losses to fraud can range into the tens of billions of dollars in the United States alone. Unfortunately, these estimates are probably even lower than the actual number, as fraud victims sometimes do not report the crime out of embarrassment or in the errant belief that nothing can be done about it.
Most investment fraud takes place within this range of high-risk investment that promises high rates of return.
Investor fraud need not be about the selling of non-existent products or about theft. It sometimes takes the form of high-pressure sales of high-risk investments. Scammers will try to get investors’ money immediately without providing in-depth background or giving needed warnings. They may present investors with fraudulent “limited time offers.” They will not give the investor time to research the investment. Often the sellers are people who are not legally registered with government securities regulators.
Investment fraud may take the form of what is presented as “risk-free and high yield investments.” They may take the form of pyramid schemes or Ponzi schemes which will appear to yield dividends at first but will eventually collapse because their structures are not tenable. They can take the form of quick investment called “promissory notes,” where the investor is told he or she is loaning money to a company at a high rate of interest. The interest payments do not materialize. Often fraudulent investments are sold over online sites. They can also be sold to particular religious or ethnic communities by claiming special benefits.
Previous surveys have found that investment fraud victims are better educated, financially literate males, usually older than average with better than average incomes. Those are the people one would think would have better resistance to fraud.
There are three main categories of securities fraud:
Misrepresentation/omission is a type of securities fraud that entails an investor being deliberately deceived, regarding information about a security. When brokers fail to notify clients of any risks linked with stocks, they’re failing in their responsibilities.
Overconcentration involves a broker intentionally not diversifying the portfolio of a client. For a client’s assets to be protected, it’s important for brokers to vary the variety of stocks that are bought. In other words overconcentration of an investment can be detrimental to clients. Fortunately, a good securities fraud attorney is able to help investors recover from this kind of loss.
Churning is a serious kind of securities fraud that’s designed for increasing a broker’s fees. This is a situation in which many stocks are traded that are not in the best interests of a client, such as selling stocks that don’t have large gains in an effort to show profits. It’s usually done by individual brokers even though, in some cases, it can involve an entire brokerage firm.
Also, this last category should also not be ignored, unsuitability securities fraud is another serious type of securities fraud. This is when a broker consciously suggests stocks that are outside of the risk tolerance of a client. This type of securities fraud is particularly damaging to senior citizens because it can destroy a huge part of an older person’s retirement savings at the time when financial security is most needed.
Other Types of Financial Consumer Fraud
Safeguard yourself by recognizing these common types of fraud listed below.
- Advance Fee Schemes
- Internet Fraud
- Insider Trading
- Boiler Rooms
- Ponzi Schemes
The laws protecting investors from financial fraud or misconduct have statutes of limitations, so it is in your best interest to act quickly.