Trust doesn’t come easily, and when it comes to investing, the professionals we depend on – such as stockbrokers, financial advisors, insurance agents, and others in a position of fiscal responsibility, all have a fiduciary duty to their clients. Breaching that fiduciary duty in the form of securities and investment misconduct can have significant implications on the lives of those who trusted them.
Understanding the most common types of securities and investment misconduct is crucial to protect yourself and your family from financial fraud. Here’s a closer look at three common ways these breaches of fiduciary duty occur:
Related Article: How to Avoid Common Investment Scams
Common Types Of Securities And Investment Misconduct
Anyone advising an investor on the purchase or sale of a security has a responsibility to avoid knowingly or recklessly misstating important facts that would be relied upon by the investor in making their investment decision. According to the FBI, three types of securities and investment misconduct it regularly uncovers are: high-yield investment fraud, pyramid and Ponzi schemes, and advance fee schemes.
1) High Yield Investment Fraud
High-yield investment fraud involves pulling unsuspecting investors in with the promise of high returns with minimal risk. This type of securities and investment misconduct often operates via unregistered investment schemes and uses assets like real estate and securities to lure in its victims. The key red flag for these schemes is the assurance of returns that seem too good to be true, often made through unsolicited communications.
2) Pyramid and Ponzi Schemes
Pyramid and Ponzi schemes utilize a similar model of securities and investment misconduct: using funds from new investors to pay returns to earlier investors, creating a false sense of profitability. Ponzi schemes rely on the promise of completely fictional returns, with little to no actual investments behind them. Similarly, pyramid schemes incentivize investors to recruit others, but the returns are unsustainable. If the fraudster is unable secure new investors whose money would be used to pay “returns” to prior investors, the schemes collapse, leaving investors with significant losses. The infamous Madoff Ponzi scheme operated that way and collapsed when Mr. Madoff was unable to convince new investors to provide the significant funding he needed to pay off prior investors.
3) Advance Fee Schemes
Advance fee schemes aim to fool investors by selling investment opportunities that never actually happen. Victims are led to believe that by paying investment fees or taxes upfront, they will have some level of “insider” access. But in reality, they are just paying for an illusory investment – there is no legitimate underlying investment.. Once the fee is deposited, the funds are quickly withdrawn, and the perpetrators who use this model of securities and investment misconduct either disappear or try to coax the victim to pay further “fees” which will also eventually be taken by the fraudsters.
Related Article: Securities and Investment Litigation and Arbitration
Seeking Legal Action
If you have fallen victim to securities and investment misconduct, you may have grounds for legal action against the responsible parties – assuming you act quickly and are still able to track them down or identify them. Consulting an experienced securities litigation attorney can help evaluate your options as you begin to find your way through this daunting and stressful legal landscape.
Combat Securities And Investment Misconduct With Gaslowitz Frankel
Here at Gaslowitz Frankel, our goal is always to advocate for the best outcome for our clients. The key to a successful outcome regardless of the path you choose to take is connecting with an attorney from the very beginning.
If you are seeking help finding a resolution for a dispute, we’re here to help. Contact us by filling out our contact form for a free consultation about your case.
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