FIRM PROFILE

Stock Fraud: What it is and What You Can Do About It

Stock fraud…sounds ominous and it is. Basically, you pour your life savings into an investment portfolio, your broker makes some bad decisions and shady transactions, and you’re left with no life savings at the end of it all. Of course, not all forms of stock fraud are that cut and dried.

Maybe you’re not completely wiped out but has your broker been skimming off the top for so long that no one notices. It happens. Here’s what you can do to stop it from happening to you.

What is Stock Fraud?

Also known as securities or investment fraud, stock fraud is basically a deceptive practice that takes place within the stock or commodities markets that causes innocent investors to make purchase or sale decisions after being given false information. The result? Loss of money – big money – for the investor, while the broker or firm faces violations of securities law. Many times, such stock fraud isn’t caught right away. It may take months or years to uncover it, and by then a lot of the money is gone.

Also known as securities or investment fraud, stock fraud is basically a deceptive practice that takes place within the stock or commodities markets that causes innocent investors to make purchase or sale decisions after being given false information. The result? Loss of money – big money – for the investor, while the broker or firm faces violations of securities law. Many times, such stock fraud isn’t caught right away. It may take months or years to uncover it, and by then a lot of the money is gone.

Considered a serious kind of white collar crime, stock fraud can be perpetrated by a broker, brokerage firm, investment bank or corporation that deliberately misrepresents information so their investors take some kind of action, either to buy or sell. Insider trading is another form of securities fraud that is punishable by law. Brokers can be guilty of misrepresenting information in a variety of ways, including:

  • Providing false information
  • Offering bad advice
  • Offering inside information or acting on said information
  • Withholding important information about a particular stock or company

Unfortunately, stock fraud is thriving in this country. In August 2015, a Sacramento man was found guilty of defrauding clients who entrusted $2.2 million into his investment clubs, says the Office of the United States Attorneys. Then, in September 2015, four Sacramento men were caught stealing money from 180 members of their investment clubs, translating to $26 million in losses. In 2009, Robert Allen Stanford, chairman of then-Stanford Financial Group of Companies, was charged by the U.S. Securities and Exchange Commission (SEC) for fraud involving $7 billion in CDs. Of course, one of the most famous recent cases of Ponzi schemes involved Bernie Madoff who incurred losses of more than $18 billion to his investors.

How to Know You’ve Been a Victim of Stock Fraud

The signs may be subtle at first but if you do some digging, you may find out even more that has been going on behind the scenes. Here are some tips on preventing your stock broker from taking you to the cleaners:

  1. Be smart and ask questions. If you’re told by your stock broker that a particular stock holds zero risk for you, raise the red flag. No one can say that for sure — even the most seasoned stock broker. In fact, a good one will tell you that there is risk in every transaction, period. Conduct your own research regarding what risks there are and which ones you’re willing to take, advises Fraud.org.
  2. Take caution when promised a big pay-off, as these pose the most risk. Do your homework before being pressured into these types of risks, and be prepared to lose big if the stock doesn’t perform the way your broker said it would.
  3. Get all transactions from your stock broker in writing. Review everything before you give your say-so.
  4. Don’t be rushed into any transaction, large or small. A broker who pressures you is up to no good.

Warning signs that your stock broker could be engaging in fraudulent practices include brokers who:

  • Won’t meet with you in person or who act cagey when you speak with them
  • Refuse to put anything in writing
  • Aren’t with a reputable firm
  • Consistently give bad advice that doesn’t give you a good gut feeling
  • Use high-pressure sales tactics to get you in on a stock right away
  • Don’t have a good reputation in the industry

What Can You Do?

Research, research, research. You wouldn’t buy a car or a house without it, so why would you hire someone to handle all of your financial assets without it? Don’t forgo your homework on the investor, even if he or she is your friend, cautions Investor.gov. Ask them these questions:

  • Are you licensed to sell securities in my state?
  • Have you had any run-ins with regulators or other investors in your history?
  • How long have you been trading?

On your own, visit the Financial Industry Regulatory Authority (FINRA) website to check up on each broker’s history.

Choosing a Stock Fraud Attorney

Stock fraud attorneys can build a case against brokers who are suspected of committing securities fraud. Just like choosing a broker, you need to do your research on stock fraud attorneys too. Look into their years in business, success record of wins and settlements, and reputation in the community. Thomas Law Group has a success rate of more than 95 percent, and has recovered more than $40 million for investors across the country since opening its doors in 1991. That’s the kind of reputation you want to look for!

If you think you’ve been the victim of stock fraud, don’t hesitate to contact a trusted securities fraud lawyer. You don’t need to live in fear or regret, but it’s important to live smartly and do your own research into the potential of every investment you consider.

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Take Caution For The Future

Look at the S&P 500 chart below. It ranges from 1977 until early 2016. If there is a stock market crash coming, all those stock brokers are still going to have to feed their families.
Take caution because hard times will probably be coming to the investor and to the broker.

Click to see latest chart. Select “All” to get a long term view like above.