What is Securities Fraud
Securities fraud, or investment fraud, is when a financial advisor: a) withholds key information about an investment; b) offers bad or negligent advice; or c) provides false information to investors to influence their investment decisions. From a legal perspective, in a securities fraud action, the plaintiff must prove:
(1) A material misrepresentation or omission
(2) Scienter (i.e., intent to deceive)
(3) A connection between the misrepresentation or omission and the purchase or sale of a security
(4) Reliance upon the misrepresentation or omission
(5) Economic loss
(6) Loss causation.
Securities Exchange Act of 1934, 17 C.F.R. § 240.10b–5.
Signs That Your Financial Advisor Might Be Committing Fraud
What are the signs that you, the investor, should look for in your financial advisor to determine if he or she could be engaged in a scheme to defraud you?
- Has your financial advisor pressured you into making decisions to sell certain securities?
- Have you been offered an investment that guarantees large returns with minimal risk?
- Does your financial advisor have trouble explaining exactly how an investment is going to generate a return?
- Has your financial advisor guaranteed large returns in a very short amount of time?
- Does your financial advisor dodge your calls or avoid answering specific questions in relation to your investments?
- Does your financial advisor fail to immediately provide you with requested documentation in relation to your investment account?
- Has your financial advisor made it difficult to cash out your account?
- Has your financial advisor changed firms with some frequency?
- Has your financial advisor rushed you to sign investment documents?
All of the examples above should be considered red flags and a potential sign of investment fraud. No matter what stock or security you decide to invest in, there is always risk of losing money on an investment. So, when dealing with any type of financial advisor do not let potential return on investment blur your vision.
Your financial advisor should always be able to answer specific questions in relation to your investments and convey the risk/return tradeoffs of any investment. He or she should also be able to provide proper explanation for any sudden or unexpected decline in value of your investment portfolio. Be aware that some financial advisor will focus on certain investments that pay them high commissions, such as annuities, so you will want to be wary of brokers that attempt to sell you these products. If your financial advisor has changed firms, you should make sure the advisor was not terminated for any allegations of misconduct. And finally, always monitor your account statements and if you notice any investment activity that you did not discuss with your advisor, you should immediately investigate this matter further.
The Steps to Take If You Suspect Financial Fraud
If you suspect that investment fraud has occurred, the first thing you should do is document every encounter between you and the financial advisor. The next step you should take is to try and work with the financial advisor to see if they can provide you with an explanation for the suspected fraud or if they will correct the issue. If none of these efforts are effective, you should file a complaint on the FINRA website, and immediately contact an investment fraud attorney to assist you with your claim. If you would like to speak with an attorney about your claim, please do not hesitate to contact our office or Matthew Schwartz at [email protected].