Signs of Investment Fraud

May 30th, 2012
by Daniel Carlson

Investment fraud can happen to anyone. To protect against financial loss, it’s imperative that investors become active participants in their financial wellbeing, learning as much as they can about their investments, monitoring their portfolios diligently, and being alert for signs of investment fraud.  A few signs to watch for:

Sure Things
Financial advisors who guarantee that an investment will perform in a certain way, i.e. often provide high returns in a short time, should immediately be suspect. No investment is a sure thing; all of them carry risks. Any broker who tells an investor otherwise is being less than honest.

Undue Sales Pressure
Trustworthy brokers do not pressure clients into investments. Even if no fraud is involved, such behavior is inappropriate. Investors should avoid stockbrokers who urge them to make snap decisions, tell them that they must “act now,” or apply other heavy-handed sales techniques.

Inexplicable Complexity
Investors should not sink their money into investments they cannot comprehend. All aspects of any investment, including how it works and what its risks are, should be understandable. Investments that a broker claims are successful because of their intricacy—a complexity the financial analyst cannot explain—should be considered suspect investments.

Consistent Pay Outs
All investments, even those that are low risk, go up and down in value. That’s their nature. When returns remain unnaturally consistent or increase in value despite negative economic conditions, that’s a red flag that an investor may have

The unsustainable geometric progression of a c...

The unsustainable geometric progression of a classic pyramid scheme, from Securities and Exchange commission report on pyramid schemes. (Photo credit: Wikipedia)

invested in a pyramid scheme, a ponzi scheme or some other investment fraud scheme.

Account Discrepancies
Unauthorized activity, missing money and other problems with a client’s account statement may simply be mistakes. However, they could also be signs that the broker is churning the account or engaging in some other type of investment fraud. To lessen this possibility, investors should monitor their account statements.

Unlicensed Brokers
Investors who do business with unlicensed brokers run a high risk of fraud. Investment scams are often perpetrated by unlicensed brokers who sell financial products that have not been registered with the Securities and Exchange Commission (SEC) or issued by a legitimate agency. Unregistered products may include stocks, bonds, notes and hedge funds, among others.

Missing Documentation
Just as investors should avoid doing business with unlicensed brokers, they should also avoid making investments that have little or no documentation. Lack of documentation is a sign that an investment may be unregistered. For instance, if a mutual fund or a stock has no prospectus, or a bond has no offering circular, it might be an unregistered security. Likewise, stocks that do not have stock symbols may be unregistered.

Investor should also keep in mind, however, that not all legitimate investment products are registered with the SEC. Regulation D products, for example, are exempt from registration, as are those issued by the federal government or a state or municipal government.

If you think that you have been the victim of investment fraud, contact Carlson Law today for a free consultation at 619-544-9300. A securities fraud attorney may be able to help you recover some or all of your financial losses.

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