A National Securities Arbitration & Investment Fraud Law Firm

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Investment Fraud and Securities Fraud

Securities Arbitration Attorneys

When an investor opens a brokerage account, the customer agreement requires any disputes to be resolved by arbitration at FINRA, which is a quasi-governmental agency which regulates brokerage firms. FINRA stands for Financial Industry Regulatory Authority, and is regulated by the SEC. Our FINRA arbitration lawyers work with investors to recover losses caused by securities fraud, investment fraud, Ponzi schemes, breach of fiduciary duty, unsuitable investments, and other kinds of stockbroker misconduct.

Silver Law Group is recognized as one of the best securities arbitration law firms in the country and Scott Silver, our managing partner, is regarded as an expert in FINRA arbitration. Our attorneys frequently lecture at law schools about securities arbitration and have written several legal articles about securities and investment fraud. The American Trial Lawyers Association published Scott Silver’s securities arbitration primer, which is used by law firms and others to help explain the securities arbitration process to lawyers and clients. With many years of combined experience, our attorneys have recovered millions of dollars for investors from Wall Street brokerage firms.

Stockbroker Misconduct

Our attorneys focus on representing investors in claims against brokerage firms, financial advisors, and stockbrokers who improperly manage an investors account or engage in gross misconduct and fraud. Our clients range from institutional investors involved in complex Ponzi schemes to many small retail investors who are victims of unsuitable advice.

Our law firm has represented plaintiffs in over a thousand FINRA arbitration claims and we have helped investors recover from some of the largest Ponzi schemes over the last twenty five years. We are sought out by other law firms around the country to co-counsel securities arbitration claims and one of the best awards our investment fraud attorneys receive is helping retirees get their retirement back on track. We handle many elder financial fraud cases against bad investment advisors and we work closely with our team of lawyers, forensic accountants, and support staff to maximize a client’s recovery through securities arbitration or FINRA.

Investment and Securities Fraud

Investment and securities fraud arises out of allegations that losses are because of misconduct unrelated to market forces. Investment and securities fraud that is related to registered securities is governed by the Securities Exchange Commission (SEC). Investment/Securities fraud claims, or other claims for misrepresentations, may involve some aspects of fraud, deception, misrepresentation, non-disclosure, or omission of material facts related to the purchase or sale of a security. Our attorneys handle a variety of investment fraud cases including the sale of stocks, bonds, private placements, illiquid REITS, and other high risk or high commission products.

Growing Number of Securities Fraud Cases

Investment and securities fraud cases are only limited by Wall Street’s ability to find new and creative ways to take advantage of investors. Our lawyers have extensive experience in representing institutional and retail investors in actions involving claims for excessive trading or “churning,” unsuitable investment advice , breach of fiduciary duty , Ponzi schemes, selling away (i.e., when the product being offered by the registered representative has not been approved for sale by his/her firm), and other misconduct by financial advisors. Investment and securities fraud that is related to the sale of non-registered securities is given the appearance of legitimacy by the promoter of the investment/security through various methods to unwary or unsophisticated investors.

The Common Indicators of Stockbroker Misconduct or Investment Fraud

Securities and investment fraud can take many different forms, but there are several universal signs that can indicate a scheme. Common red flags of an investment or securities fraud include:

  • Illiquid Investments
  • Real Estate Investments
  • Private Placements
  • Investment Guarantees of Principal or Interest
  • Investment Sold Without Prospectus (unregistered)
  • Unfamiliar Custodian of Funds
  • Complex, Difficult to Understand Investment
  • Advisor Without Any Credentials or Licenses
  • Advisor Promotes “His Family Members” Invested
  • Unexpected Contact by Phone or Email
  • Pressure Sales Tactics
  • Lack of due diligence

If you notice one or more of these signs of securities or investment fraud, be wary of investing your funds with that individual or stockbroker firm. And if you believe you’ve been the victim of a form of fraud, contact a reliable securities arbitration attorney as quickly as possible to work through your options.

Types of Investment and Securities Fraud

In many instances, investment and securities fraud is perpetrated by individuals who have earned the investor’s confidence and owe the investor a fiduciary duty. Stockbrokers are regulated by the SEC and FINRA and must follow strict rules. Types of investment and securities fraud scams include:

A more in-depth look at several of these forms of investment and securities fraud reveals common traits amongst many investment frauds. You’ll find that some scams actually span categories, making it all the more important to be familiar with the various signs of deceit that indicate a fraudulent investment opportunity.

Ponzi Scheme

A Ponzi scheme is a common type of fraud where a new investor’s money is used to pay old investors. An investor in a Ponzi scheme believes they are getting a return on the business they invested in, but they’re actually getting another investor’s money.

The “Ponzi scheme” was named after Charles Ponzi, an infamous con artist in the U.S. and Canada who became known in the 1920s for his investment scams. Ponzi promised clients 50 percent return on their investment in 45 days or 100 percent in 90 days through a supposed arbitrage investment involving postal reply coupons. Ponzi was actually paying earlier investors with new investor’s money, not from operating a business.

Ponzi schemes are unsustainable because they require more and more new money to pay returns to previous investors. When that new money can’t be found, the scheme collapses. Often investors lose all or a significant amount of their money, and the con artist leaves town. The most famous Ponzi scheme was Bernie Madoff’s, which collapsed in 2008 and cost investors about $18 billion. Though none have gotten as much publicity, Ponzi schemes have continued to be perpetrated by fraudsters.

To avoid investing in one, be aware of some of these common characteristics of Ponzi schemes:

  • Guaranteed short term results
  • Uncommon business strategy
  • Being solicited with cold calls, emails, or letters

Ponzi schemes are often affinity frauds where the swindlers convince many people in a group, such as a religious or ethnic group, to “invest.”

If you’re considering investing in something, you can protect yourself from being a victim of a Ponzi scheme by:

  • Asking what licenses the person selling it holds
  • Checking the advisor’s background
  • Being skeptical of higher than average returns and unrealistic guarantees
  • Not overconcentrating your investment in one place
  • Verifying the nature of investment with other sources

Ponzi schemes sometimes aren’t revealed as such until an economic downturn causes it to collapse, which was the case with Madoff. Victims of Ponzi schemes should speak to experienced attorneys as soon as possible after discovering they are victims.

Silver Law Group , a nationally recognized investment fraud and securities arbitration law firm, has helped investors recover money from Ponzi schemes.

Pump and Dump Penny Stocks

Another common type of investment and securities fraud is the pump and dump stock scheme . This type of fraud works by generating increased trading, which inflates the price of a chosen stock. Once investors begin buying “hot” stock, and the price increases (the “pump” portion of the scheme), the instigators of the fraud sell their shares (the “dump”). This lowers the price of the stock and results in what can be massive losses for investors.

To initiate this process, fraudsters feed false or misleading information about an opportunity or company to investors. This information can be spread in a variety of ways, including in biased newsletters, online chat rooms, and online bulletin boards. Stockbrokers or brokerage firms may even be compensated in exchange for promoting the investment opportunity to individuals.

False or misleading information around a company or product might also take the form of a newsletter or false press release that paints a company or product in a flattering light. Press releases are often thought of as authoritative and factual, so it’s essential to dig deeper into any promising investment opportunity that presents itself out—even if you’ve heard about it through multiple sources.

To protect yourself and your investments, keep an eye out for the following red flags that might indicate a pump and dump scheme or other penny stock fraud:

  • Stockbroker is receiving compensation for recommending a particular stock
  • Stock is traded in the over-the-counter (OTC) market
  • The stockbroker or brokerage firm recommending the stock uses high-pressure tactics, such as claiming that the investor will miss out unless he or she makes an investment immediately

Before investing in a stock, take the following steps to help you avoid pump and dump penny stocks:

  • Upon learning of an investment opportunity, research the stockbroker or individual who provided the information
  • If the investment opportunity was conveyed by a stockbroker, be sure to ask whether he or she is receiving compensation in return for recommending the stock to investors
  • Thoroughly investigate any investment opportunity traded in the OTC market, as these opportunities are riskier and more likely to be manipulated
  • Take advantage of the Securities Exchange Commission (SEC) EDGAR database to determine whether or not the investment is registered
  • Some smaller companies are not obligated to register their securities offerings with the SEC, so consider contacting the state securities regulator
  • Above all, take an appropriate amount of time to consider the investment opportunity, and do not allow a stockbroker or other individual to rush you into making a decision
Precious Metals Fraud

Along with the increase in the price of precious metals, such as gold, silver, and platinum, has come an increase in precious metal fraud . Con artists are taking advantage of the strong market for these materials to lure investors into false opportunities—promising them untold riches. It’s all too easy to be taken in by an attractive television ad, an online listing, or even a cold call. These fraudulent sales pitches will often claim that investors can triple their expenses with little or no risk. Unfortunately, if the opportunity sounds too good to be true, it most likely is.

Precious metals fraud is typically perpetrated by individuals who create false investment programs or precious metals firms. They then tout the numerous benefits of these materials without enumerating the risks of investing in precious metals. Sometimes, these firms don’t even own any precious metals and rely on convincing investors that their silver or gold is better off stored where they’ll never see it.

Unfortunately, these investors are unlikely to see those exponential gains and may lose some or all of their initial investment. If you’ve been the victim of precious metals fraud, the experienced attorneys at Silver Law Group can help. We’ve represented a number of investors who have lost their investments through precious metal scams. Our breadth of experience allows us to advocate for your best interests throughout the arbitration process.

Let’s expand on this particular type of scheme. Typically, fraudsters lead investors to believe that they can increase their investments exponentially by paying a relatively small down payment. The rest of the purchase is purportedly arranged as a loan. From there, the fraudulent firm charges a number of fees for the purchase, storage, and shipping of the precious metals that have theoretically been purchased for the investor. The kicker? Most of these transactions never actually take place, and the firm usually does not even disclose these fees upfront. Ultimately, investors are hit with numerous fees and interest changes that keep them from profiting or just breaking even.

The CFTC lists several warning signs that may indicate precious metals fraud:

  • Projected returns with little to no financial risk
  • Unexpected email or telephone solicitations
  • Assurance that small deposits will enable control of large amounts of precious metal
  • Guaranteed principal and profits

Investors considering putting funds towards precious metals should:

  • Confirm the firm’s membership status with the CFTC and National Futures Association (NFA)
  • Verify that investing in precious metals is in keeping with your financial goals
  • Find out how the individual selling to you is compensated
  • Verify the location of the precious metals being sold, as well as the identity of the money lender
Self-Directed IRAs

Self-directed IRAs are yet another investment opportunity rife with con artists and fraudulent schemes. This type of IRA allows an individual to invest in options outside the approved mutual funds, stocks, bonds, and CDs typically allowed by regular IRAs. But while they provide an exciting opportunity for investments in assets like private placement securities , self-directed IRAs are more susceptible to fraudulent schemes and bad investments.

There are a variety of schemes out there meant to take advantage of self-directed IRAs. Perpetrators of Ponzi schemes, for example, often seek out these types of accounts, as those investors can hold unregistered securities. Some con artists may even encourage investors to transfer their assets from their own IRAs to a fraudulent self-directed IRA owned by the scammer.

Another area of potential concern is that trustees and custodians of self-directed IRAs may have limited duties. This can lead them to make investments without fully vetting an opportunity or individual. This measure of oversight makes these account holders an attractive option for con artists and can result in massive financial losses for the investor.

Custodians and trustees of self-directed IRAs should take the following steps to protect their investments:

  • Confirm the accuracy of all account information in self-directed IRA statements
  • Be cautious when promised guaranteed returns, and be sure to ask informed questions
  • Do not entertain unsolicited investment offers
  • Keep a close watch on your investments
Social Media and Securities Investing

Social media platforms have vastly expanded our ability to communicate, but they’ve also opened the door for con artists to perpetrate fraud on a deeper level. Given the ease of creating a profile on sites like Twitter, Facebook, LinkedIn, and Instagram, scammers have no trouble finding and connecting with investors who seem like a likely target for their schemes.

The U.S. Securities and Exchange Commission (SEC) has issued an investor alert warning about fraudulent investment opportunities being spread on social media. After all, it is relatively simple for a post to go viral, putting a seemingly advantageous opportunity in front of countless investors who might be tempted to buy in. In order to stay safe, the SEC advises investors to be thoughtful about their privacy and security settings, watch out for “affinity fraud,” be cautious of unsolicited offers, and learn to recognize social media scams.

Knowledge is key to recognizing and avoiding some of the most common social media scams out there. Online platforms allow for the easy spread of misinformation—making them ideal forums for scammers looking to promote phony investments. Pump and dump schemes, for example, are often advertised on platforms like Facebook and Twitter.

If you’re tempted to invest in an opportunity you found through social media, first make sure that you’re protecting yourself:

  • Confirm the validity of any potential investment opportunity
  • Don’t hesitate to ask questions before investing
  • If you feel at all uneasy about a potential opportunity, contact FINRA, the SEC, or a knowledgeable securities attorney

Unfortunately, even the sharpest of investors may fall prey to an opportunistic social media investing scam. In the event that you find yourself the victim of this form of investment fraud, reach out to a qualified attorney who can evaluate your case and options for recovering your losses .

What Is Excessive Trading?

High volume trading may be ideal for investors who are comfortable engaging in speculation or risky trading strategies. For these investors, they understand the risks and have the resources to leverage for frequent trading. But not everyone wants to trade that much. For the investor with a conservative investment objective and low tolerance for risk, high-volume trading may be more than they’re comfortable with.

Excessive trading, also called “overtrading,” is a prohibited practice in which a broker continually buys and sells in a customer’s account for the purpose of generating their own commissions and fees. The buying and selling of these equities may be for any type of investment, including those intended for long-term holding, such as mutual funds and annuities.

This fraudulent activity is regulated by FINRA, the Financial Industry Regulatory Authority, and is a violation of securities law, which falls under the Securities and Exchange Commission, or SEC. Excessive trading can lead to significant losses for the investor. However, it is not SEC regulated when an individual professional trader engages in the practice.

What Is Excessive Trading

Excessive trading occurs when a broker continually trades in a customer’s discretionary account in a way that isn’t beneficial to their investment objectives and leads to losses but enriches the broker and the broker-dealer.

A broker who intentionally implements these trades does so with the intent to defraud. The extra costs make it difficult if not impossible for the investor to see a positive return on their investments. This type of fraud is a violation of the SEC’s Rule 15c1-7 which includes any type of “fraud or deceit.”

How And Why It Happens

Most broker-dealers have their own internal restrictions on excessive trading, which may include written instructions and automatic red flags in their systems. Not all firms have the same types of internal controls, so not everything gets noticed.

Brokers are paid by commission, and based on the amount of business they bring into the firm. The more they trade, the more they make, making it tempting to trade unnecessarily.

How Do You Know If Your Broker Has Been Excessively Trading?

Red flags may indicate excessive trading include:

  • Turnover rate, or the number of times the account equity “turns over.” In basic terms, this is the number of times the securities in the account are “turned over” and replaced by new ones in a specific period, such as a month or a quarter.
  • Cost-equity ratio, or the amount that the account would need to increase for the investor to break even. A cost-equity ratio of 35% means that the account must appreciate by 35% for the investor to break even.

FINRA’s general benchmarks for excessive trading are a turnover rate of 6 in a specified period, and/or a cost-equity ratio of 20% or more.

What Do Your Documents Say?

Review your account documents closely and make sure everything is exactly as you want. Report any discrepancies to your broker or broker-dealer and ask questions. Close, regular examination of your brokerage account statements may also indicate excessive trading. This is especially true if your account’s balance has declined but your broker or brokerage receives considerably more charges than may be normal.

A broker who continues to buy and sell the same securities repeatedly is likely to reap higher commissions and fees. So is a broker who engages in “in-and-out trading,” that is, someone who sells part of or all of a portfolio, reinvests the funds, then sells the just purchased securities right away. This is another reason you may be paying too much for trades.

Does your broker have authority to freely make those trades in your account? Without your oversight, a broker can trade whenever they want without consulting with you first. Excessive trading may also indicate unauthorized trading in which a broker is trading on securities that you might not know about or didn’t authorize. You may have to restrict your broker, meaning they must contact you for authorization for any trade they make on your behalf.

Sometimes excessive trading isn’t as obvious. If you’re not sure, ask your broker and your broker-dealer about something that may not look correct. Should you still have questions, Silver Law can review your account and look for anything unusual.

One Example Of Excessive Trading

FINRA (Financial Industry Regulatory Authority) routinely handles investor complaints and arbitrations against brokers who engages in excessive trading and other fraudulent practices. One such example is broker Mirsad Muharemovic, who made highly unsuitable recommendations to two elderly investor clients. Both accepted his recommendations.

Muharemovic began excessively traded in both their accounts, frequently trading on margin. One investor’s cost-equity ratio became 74.25%, meaning the account had to appreciate nearly 75% to break even. Both investors realized thousands of dollars in losses over time. Following a FINRA disciplinary action, Muharemovic was suspended for nine months, fined $5,000, and ordered to pay restitution to the two clients, which totaled $211,643.

Before investing, investors may use FINRA’s free BrokerCheck tool to research their background and history. Here, you’ll find disputes, complaints, employment discharges, FINRA arbitrations and other disclosures in a broker or broker-dealer’s history in the industry.

Did Your Broker Engage in Excessive Trading?

Investors whose have lost money to excessive trading are not without options. Silver Law Group has helped thousands of investors recover losses.

SEC Receivership Attorneys

An SEC receiver is frequently appointed to SEC cases for the benefit of investors to manage the affairs of a company that has been accused of securities or investment fraud or operating a Ponzi scheme. Silver Law Group frequently works as counsel for the receiver to help recover assets for the creditors. In other cases, we directly represent the investors and work in cooperation with an SEC receiver to help pursue claims against others who may be responsible or involved with the fraud, including claims against banks, accounting firms, auditors, and others.

Experienced Securities Fraud Attorneys

Silver Law Group represents investors in securities and investment fraud cases on a contingency basis . Declining stock markets typically expose many fraudulent investment schemes as investors demand the withdrawal of their funds. Our lawyers are dedicated to representing investors in arbitration, state, and federal court. We have handled claims against every major financial institution and Wall Street firm that might have been involved in any way with investment and securities fraud, including UBS, Morgan Stanley, Merrill Lynch/Bank of America, and Wells Fargo. Our clients include large institutional investors and many small investors.

Depending on the circumstances of your investment, fraud can take a massive toll on your finances. If you believe you’ve been the victim of investment or securities fraud, contact Silver Law today. Our talented attorneys will put their years of experience to work recovering your losses. All inquiries are held in the strictest of confidence, and we do not share your information with anyone without your permission. We look forward to assisting you.

Additional Resources for Investors
Client Reviews
“My in-laws lost their retirement funds to a dishonest broker. Silver Law Group and Scott Silver aggressively pursued their losses until he got their money back.” Ben M.
“I foolishly gave my money to a con artist promising me a great return on my money. Scott Silver zealously handled the matter, recovering my losses.” Darren S.
“I almost lost a lifetime of earnings after trusting the wrong person. Silver Law Group guided me through the arbitration process and a mediation, always fully prepared and committed to my case.” Scott T.