Ad Blocker Detected
Our website is made possible by displaying online advertisements to our visitors. Please consider supporting us by disabling your ad blocker.
Investment fraud is more common than you think so don’t hesitate to take action if you are dealing with something like this because many of your losses are recoverable. The law says that there are three types of losses that can be recovered, which are the following:
- Churning – also known as excessive trading, which typically occurs when a broker engages in transactions with the purpose of generating excessive commissions from his clients.
- Unauthorized trading – this entails omissions and misinterpretations that may result in trades failing on purpose with the aim of creating gains or cutting losses.
- Unsuitable Investments – this category includes trades that are not made according to FINRA requirements.
5 Common Investment Fraud Situations
If churning or unauthorized trading sound like situations that are far from day-to-day events, let us put things into perspective. These are 5 situations that you have most probably heard of that result in investment fraud, which you are well worth looking out for:
1. Ponzi Schemes
The principle is simple – any investment relying on fundraising made by promoters rather than the direct success of the business itself is most likely a Ponzi scheme. In spite of the fact that this is the stereotype for investment fraud, it is still wide-spread in the business world nowadays.
2. Outside Business Activities
Also known as “selling away”, this type of fraudulent conduct occurs when a broker investments to clients that are not directly transacted through the firm. Typical situations include brokers advising their clients to make certain investments and skipping the brokerage firm transactions. Always make sure that brokers follow the legal path during the entire process of the transaction.
3. Direct Participation Programs
While DPPs are a legitimate form of operating entity, it is all too common for brokers to use them to get very generous commissions. DPPs are long-term investments worth looking out for because they can carry out for five or even ten years, to the client’s detriment. These are common in the oil and gas industry and many types of equipment leasing investments.
4. Margin Abuse
Margin accounts are used for clients to borrow money for their investments from the brokerage companies. While there are federal regulations limiting such investments, it is all too easy for some brokers to abuse this type of account. They usually advise clients to invest in volatile stocks or demand additional funds or commissions.
5. Promissory Notes
Common practice for start-ups and small businesses, promissory or investment notes promise high return rates meant to compensate for high-risk investments. These are the support system set up by brokers who cannot qualify for better types of security licenses.
What to Do When Dealing With Investment Fraud
If you think that you may be the victim of any of the situations described above, then the best course of action is seeking legal representation. It is ideal to work with specialized law companies in the field of investment fraud, such as Investorclaims.com. When it comes to recovering investment losses, it is always your best choice to call out the big guns from the very beginning.
Ryan Yarbrough is a small business consultant, speaker, and the manager at Davis Financial Services, a small business consulting firm.