Securities Fraud FAQs
The majority of financial advisors follow the suitability rule. Through the ups and downs, they continue to make reasonable recommendations and ethically manage their clients’ assets. When unscrupulous advisors take advantage of their position and their clients, these are the most common questions we see in our practice:
Is my securities fraud case worthwhile?
Every investment profile is different and deserves individual scrutiny. A securities fraud attorney can help you determine if your particular case will likely result in adequate relief. Some of the factors your attorney will evaluate before taking a securities claim include:
- Proof of a financial advisor’s misconduct. Without proof of misconduct, fraud, or malpractice, you cannot file a claim.
- The amount of money lost. Like any claim, the potential relief amount must outweigh the costs of pursuing the claim.
- The financial status of the financial advisement firm. Most investors pursue claims to obtain relief. If the advisement firm can’t pay, the investor cannot recoup his or her losses.
Can I recover assets even if my advisor did not commit an act of fraud?
Fraud (intentionally misleading a client) is only one type of investment misconduct. Financial advisors must adhere to all FINRA rules for ethical conduct. In particular, many cases hinge on the FINRA rule 2111 (the suitability rule). If an advisor fails to assess the suitability of an investment and make a reasonable recommendation, he or she may face repercussions regardless of intent.
What are some of the most common types of investment misconduct?
Securities fraud and misconduct run the gamut from simple acts of misrepresentation to large and complex Ponzi schemes. Some of the most common types of misconduct include:
- Failing to recommend an investment that makes sense for the investor.
- Unauthorized trading. This occurs when a financial advisor fails to obtain approval from the investor prior to purchasing or selling a security.
- Purchasing and selling products excessively for personal gain falls into this category. Churning can drive up tax liabilities for an investor without producing any meaningful returns.
- Fraud. Technical acts of fraud include embezzlement, Ponzi schemes, pyramid schemes, insider trading, high yield investment fraud, and foreign currency fraud. Any act that goes beyond ethical misconduct to a knowing act of deceit for personal gain falls under the category of criminal fraud.
Am I at risk for investment fraud?
All investments come with a certain degree of risk. Protect yourself from fraud with research and due diligence, but even these precautions cannot eliminate all risk. Some of the most affected individuals include retirees, business owners, and other non-high net worth individuals trying to boost retirement income. Understanding the potential for risk and the signs of fraud or misconduct can help you defend against securities fraud.
How much will it cost me to pursue a claim?
Most securities attorneys work on a contingency fee basis. Discuss additional costs of arbitration (filing fees, witness fees, etc.) with your attorney to better understand the costs and benefits of pursuing a claim.
Is FINRA arbitration the same as a lawsuit?
Arbitration is not as formal or costly as a trial, and many advisor agreements include FINRA arbitration terms. In arbitration, up to three arbitrators will listen to and determine the outcome of a dispute. You may still want to hire an attorney for this process to protect your rights and facilitate the claim filing, discovery process, and hearing.
I think I have suffered losses from securities fraud. What is my next step?
Evidence of fraud or misconduct may include poor communication with your advisor, proof of unauthorized trades, unreasonable account losses, and unexplainable declines in investment value. Gather as much documentation about your investments as possible and contact an attorney to set up a consultation. During an initial consultation, an attorney can help you understand if your advisor acted unethically or illegally and recommend next steps.
The SEC and FINRA hold exploitative and reckless advisors accountable for their actions every year. Take steps to protect your investments, and reach out for support if you feel you suffered preventable harm at the hands of your financial advisor. Most importantly, contact a securities and investment fraud attorney as soon as possible to begin filing your claim.