Financial frauds aren’t just prevalent in the financial markets. In fact, common people, who may not hail from a strong financial background, are more susceptible to falling prey to fraudsters.
As an investor, you may be relying on your financial adviser or broker for advice and making decisions based on the information they provide you with. However, these are the same people who can take you for a ride. Intentionally or not, brokers and advisers are capable of recommending fraudulent schemes to you.
With the aim to protect investors and maintain fair and orderly functioning of securities markets, the U.S. Congress created the Securities and Exchange Commission (SEC). It promotes the complete public disclosure of all financial deals so that it can protect investors like you against fraudulent and manipulative practices in the market.
Just like the SEC, the Financial Industry Regulatory Authority (FINRA) also monitors financial players and corporate takeover actions. So, in a situation where a dispute arises between your broker and yourself, it is the FINRA’s dispute resolution process that is considered as the first avenue taken before the SEC or federal courts get involved.
Practice the following tips to avoid getting trapped in investment fraud:
1. Pay Attention to Red Flags
Many investment scams are executed by unlicensed individuals who con investors by promising greater returns. They do so by selling unregistered securities that may be bundled together. You need to be extremely cautious before going for stocks, bonds, notes, hedge funds, and oil or gas deals. These are prime bank investments that may be drafted using financial jargons that you may not be comfortable with and can be easily used to keep you in the dark.
All investments use your hard-earned money and come with a degree of risk. Be suspicious of any financial broker or adviser who guarantees an investment that varies from the usual returns.
Decline any offer that is in the form of an unsolicited pitch to invest in a company and isn’t backed by authentic financial information from independent sources. Such schemes are referred to as “pump and dump” schemes and usually, target micro- or small-cap stocks.
2. Know Your Rights as an Investor
As an investor in the U.S., you can enjoy certain rights under federal and state law. The U.S. Department of Justice has specified all such rights. You can even check with your state attorney general to know about the state laws that apply to you. Make sure you are thorough with the North American Securities Administrators Association’s “Investor Bill of Rights.”
For instance, you should be able to discuss all your account problems with a representative or compliance department of the firm you’ve invested in and receive prompt attention to your concerns. Further, you should receive complete information about your investment, including the commissions, sales charges, transaction or redemption fees, and penalties. Violation of any of your rights can be treated as a crime, and you can file a lawsuit against that company.
3. Prepare an Investment File
Whether or not you are tricked by your advisor, you should start putting together an investment file for yourself. Collect all the documents concerning the schemes that you have invested in and keep them in a secure location.
Even if you cannot arrange for all the paperwork, ensure that you have at least the essential details. This will include your broker’s name, contact information, and the purported regulatory registration numbers used by him/her. Save a copy of all written communication exchanged between yourself and your broker.
Further, try to maintain a timeline of events, which may span many years. Remember to preserve a copy of your most recent credit report from all credit reporting companies, so that it can be presented as evidence of fraud, if needed.
4. Seek Legal Guidance
Be wary of all unsolicited emails and company news releases that highlight the financial information that should never be disclosed. Hire an experienced FINRA fraud attorney to determine the authenticity of the offers. Some attorneys may even help you understand a company’s business and its products or services.
Also, in case you’re a victim of a fraud, you may be able to recover some of your lost assets with the help of your attorney. Such professionals are experts in handling the process of dispute resolution. These matters can be resolved using legal methodologies like arbitration, mediation, or a civil lawsuit.
Financial fraud is a federal crime and can result in serious damage to your financial security. Investment fraudsters hone their persuasion techniques to trap investors and brokers with the most lucrative profiles. Take serious action against the scammers so that they are unable to take your money away from you.