Beware of securities fraud

by | May 13, 2021 | Business Disputes, Business Litigation |

Individuals and institutions often turn to financial professionals to help grow and maintain investment portfolios. Under the best circumstances, these financial people successfully guide clients toward smart investments while also protecting assets against losses.

However, there are no guarantees in the financial market, so trust is essential for putting clients at ease. A violation of that trust is outright theft by a person or organization with whom a victim has a business relationship.

Common examples of fraud

Also known as investment fraud, securities fraud often involves complex finances that may be hard to understand or recognize, but here are some basic details to look for before investing:

  1. The Internet: One of the most common modern-day examples, internet fraud can include the intentional inflation of a stock’s value, which is then sold to the victim or prompts them to buy more.
  2. Fraudulent accounting: Falsifying financial reports or neglecting to identify them leads to billions lost each year.
  3. Penny stocks: These inexpensive stocks can be worth pennies. So the allure of this seemingly cheap may be too much for some investors – just a few cents increase can double the value – but these stocks are less regulated and lead to billions in losses annually.
  4. Mutual funds: The idea is to group investors to get more lucrative opportunities, but managers may secretly engage in deceptive trading practices like delaying trades that would have lucrative or avoid loss. There also may be other actions that intentionally or unintentionally through negligence cost the customers money.
  5. Insider trading: It is illegal for employees, directors or officers with at least a 10% stake to buy or sell shares using information that is not available to those outside the company.

A contract may or may not protect them

It is always essential for investors to read through a contract before hiring a money manager or financial advisor. It is also advisable to have outside financial and business experts review the agreement to ensure there are no loopholes or strategic omissions in the contract to protect them. Attorneys can be a part of this process or take action to hold the fraudsters accountable.