Investment Fraud Attorneys Can Help You Recover Your Losses
This page is for those who may not be ready yet to speak with an investment fraud attorney about their situation. It is our goal to try to anticipate some of the questions you may have from our experience interviewing clients who have suffered investments losses. Hopefully, after reading this section you will have a better understanding of some your potential legal options. Our attorneys are here when you are ready to discuss your case.
Investors understand that investing often involves risk. However, many investors do not realize that sometimes losses occur as the direct result of their advisor’s negligence, misconduct, and in some extreme cases fraudulent behavior by their broker or those who run the investments recommended.
Investors also underestimate just how common brokerage firm negligence and fraud is in the financial industry.
In just the year 2019 alone 348 advisors or brokers were barred from the brokerage industry by one financial regulator – FINRA. In addition, another 415 brokers or advisors were suspended for their misconduct. In total, nearly 3,000 investor complaints were received by FINRA.
Part of the reason that investors are often caught off guard by their advisors misconduct is due to the successful marketing job the financial industry does through commercials and print ads that openly solicit investor trust and confidence. Another reason is that often times the reason for the advisors negligence is hidden from the investor who does not understand the behind the scenes actions of the firm that caused their losses.
If you even suspect advisor misconduct it is worth considering talking to an attorney who handles investment fraud related disputes. Investors do have rights and remedies in cases where losses occur due to the negligent or fraudulent actions of their broker, advisor, and the investment firms they work for.
If you are considering speaking with an attorney who focuses on investment fraud about recovering your losses you should know a few things about the attorneys at Gana Weinstein LLP:
- Our investment fraud attorneys have been representing clients for many years through numerous market cycles, products, and industry changes.
- We have represented thousands of investors over the years and recovered tens of millions for investors.
- Whether the case is complex or a common fact pattern, our team of attorneys have handled projects big and small successfully walking our clients through exactly how the case will be brought, prosecuted, and our best judgement on expectations.
- Our firm successfully resolves the overwhelming majority of cases but has significant trial experience if a hearing is necessary.
- Finally, we handle the majority of our cases on a contingency fee basis and never charge for consultation.
Our securities fraud attorneys below answer some of the most frequently asked questions from investment victims.
- Brokers are professionals and are regulated so why do I need to check their credentials?
- Because investing inherently entails certain risks why would I have a claim and shouldn’t I expect losses?
- How do I protect myself from broker fraud?
- Why do so many victims of investment fraud not contact an investment fraud attorney to recover their losses?
- How do Advisors Discourage Investors from Exploring Recovery Options?
- What are the warning signs of investment loss that may be concealed or difficult to spot?
- What Duties do Financial Advisors Owe in Dealing With their Customers?
- What are common types of investment misconduct that your firm handles?
- Common Investment Products that Result in Investor Losses?
- How Do Investment Fraud Lawyers Help Clients and Evaluate Claims?
While it is true that there are regulations and regulators that enforce the securities laws investors need to be vigilant in vetting their advisors. The securities regulations that exist include federal laws, the SEC, state regulators, and FINRA among other regulatory agencies.
However, most investors do not realize that the primary regulator and overseer of their advisors are the investment firms themselves. Firms are required to supervise their agents and are charged under the securities laws to detect and prevent fraud and misconduct by their agents. Unfortunately, studies now show that certain brokerage firms actually cater to the misconduct of their advisors and do not properly supervise their activities. In fact, brokerage firms often argue in our cases that they have no obligation to stop the frauds of their agents.
Due to the failures of self-regulation and the inability of regulators to devote sufficient resources to prevent adivisor misconduct investors should always check the credentials and work history of any advisor they deal with.
For example, FINRA’s BrokerCheck displays complaints and disciplinary actions filed against brokers or firms. This resource also lists when the broker or firm is no longer registered and may state why that person is no longer a member of the industry. On the advisory side, the SEC Investment Advisor Public Disclosure IAPD compiles the background information on advisors and advisory firms. Another resource is the North American Securities Administrators Association (NASAA). This organization is a consortium of state regulators who combine their resources to jointly regulate and protect investors. The organization has helpful links and resources for investors.
Because investing inherently entails certain risks why would I have a claim and shouldn’t I expect losses?
While investing does entail risks a financial professional should only make investments that expose an investor to reasonable risks that are consistent with their financial plan and stage of life. When an investor suffers an unusual (or unexpected) loss that is inconsistent with either the investor’s expectations or how the investment strategy was described an investigation and explanation is warranted.
Overall, investing should result in positive results over medium to long term time horizons. For example, Vanguard provides sample model portfolios and expected returns. A portfolio with 60% stocks and 40% bonds over the last 90 plus years averaged 8.6% returns and only suffered losses in 22 out of 93 years. Accordingly, a portfolio that generates no returns over 10 years for example is highly unusual under most market conditions.
If you have suffered losses year after year while the market is generally performing well you have the right to ask why your portfolio cannot perform even under good or positive economic conditions. The answer may or may not be negligence on the behalf of the advisor but unusual account performance is a potential warning sign that there could be a deeper issue with your investment portfolio.
In the sections below, we outline some of the common claims that our firm brings that may also explain reasons for your unexpected investment performance and investment losses.
How do I protect myself from broker fraud?
There are also deceitful advisors, even registered ones, out there in the industry at every moment who work hard to disarm their clients concerns and suspicions for their own ends. While there is no full-proof way to prevent fraud there are steps that can eliminate many of the more common fraudulent practices.
First, as stated earlier use BrokerCheck and other resources to check your advisor’s credentials. If your advisor has committed fraud in the past there is a chance such information will be listed here.
Second, many clients are defrauded through overly complex and opaque investments and investment strategies. Since fraud flourishes in the shadows advisors that engage in fraud are not known for their transparency. If the investments or investment strategy are difficult to understand it may be misrepresented to you. If you do not receive regular account statements or receipt information concerning your transactions it could be a warning sign of fraud. If the investment does not come with disclosure documentation it could be a warning sign of fraud. If the investment never changes value over many years and there is no news, audits, or updates as to the performance of the investment this could be a warning sign of fraud. In sum, the easier the investment is to understand and the greater the transparency the less likely that either the advisor or the investment is an outright scam.
In the event that you are the victim of investment fraud, keep as many detailed records as you can concerning the activity including all contacts with your broker, financial transactions, reports, emails, and other information. These details are important when analyzing your avenues and options for loss recovery.
Why do so many victims of securities fraud not contact an investment fraud attorney to recover their losses?
There are many reasons that victims of investment fraud do not seek recovery options when they have suffered losses.
The two top reasons are that they are embarrassed that they were taken advantage of and refusal to believe that they are a victim of fraud. Many investors view their fraud losses as a personal failing and blame themselves for either not trusting their “gut” in their dealings or not digging deeper first before agreeing to invest. Our firm often takes calls from investors where it is apparent that the person is having a difficult time conveying what has happened to them due to their feelings of embarrassment and failure. Sadly, if an investor has sufficient other resources to adjust their lifestyle to accommodate the loss the investor may not contact an attorney at all to avoid the topic.
The second reason is that many investors are either tricked or refuse to believe that they were the victim of fraud or wrongdoing. These investors either believe that if they wait long enough the deal will be successful or otherwise cannot confront the fact they have suffered losses because it is too painful a subject for them. These reasons keep victims of investment fraud from exploring their recovery options.
There are also a host of other reasons that some investors do not reach out for help including that the investment was too complicated for the investor to understand their losses, the investment losses are concealed by the broker or the brokerage firm through convoluted account statements, and that advisors who have engaged in wrongdoing routinely discourage investors from seeking legal help or filing complaints.
Whichever category you fall into you owe it to yourself to at least understand what the options are and what can be done to recover losses. Whether you choose to move forward with a claim is a personal decision that only you can answer but our firm is here to make sure you have all the information necessary to make the decision that fits your circumstances.
How do Advisors Discourage Investors from Exploring Recovery Options?
Advisors use several tried and true methods to discourage upset investors and victims of investment fraud from seeking legal help. First, the advisor will invariably play on their personal or financial relationship with the investor to downplay or smooth over the events. Many advisors enjoy a personal relationship with their clients with some even being invited over to their client’s homes or for family events. Other advisors are part of the same social circles and communities that cause investors to reconsider disrupting their social circle or community.
Another common tactic is that the advisor will simply try to delay action by the investor. When the investor asks the broker for an update on the investment or strategy or why the value of their accounts has drastically declined response is typically that the losses are only “temporary”, “it’s just the market”, “there’s a short-term issue”, and of course “it will come back” and always “don’t worry.”
A warning sign of securities fraud would be if the advisor gave these answers but could not go into more detail as to what the specific cause of the decline or loss was. Sometimes these claims may be true if the broader market or industry has declined, but in cases of investment fraud there will be a lack of transparency as to the reason for the decline and what the expectation for the investment is.
Investors should seek out investment attorneys if they are concerned that their advisor is discouraging them from seeking other advice. At the very least, a consultation concerning the investment or investment strategy would provide an investor with additional information for them to consider. There have been occasions where our attorneys spot problematic conduct or securities on calls where investors are just seeking information concerning a confusing investment recommendation or transaction in their account.
What are the warning signs of investment loss that may be concealed or difficult to spot?
Investment fraud and negligence can be difficult to spot for even intelligent investors. Many of our clients are doctors, engineers, and lawyers in other fields of practice. Advisors defraud the less educated and highly educated alike. The most common ways investment losses are concealed from investors include:
- Your broker sends account statements and financial information that does not match your records. (this is a fraud warning sign).
- Your advisor trades your account without authorization or engages in unexpected and not discussed trades on your statement. (this is a fraud warning sign).
- Advisory and other fees on your statement are unexpected. In addition, the advisor asks you to write a separate check for advisory fees even though such fees are being paid for each investment or deducted from the account. (this is a fraud warning sign).
- Your broker is making many trades on a monthly basis sometimes in and out of the same security. (this is a fraud warning sign).
- The investments made are concentrated in private investments that do not have readily apparent market values. In these situations, investors do not realize if these private or non-traded investments have lost value until many years later.
- You complain to your advisor about not receiving a payment and your advisor promises that he will get you a payment. (this is a fraud warning sign).
What Duties do Financial Advisors Owe in Dealing With their Customers?
Depending upon whether you are dealing with a broker or financial advisor the duties are slightly different. However, every advisor has duties commonly included and considered part of a fiduciary duty. These duties include duties or prudence in recommendation and advice (called the duty to recommend suitable investments), the duty to disclose most conflicts of interest, duty to disclose material information, and the duty to act in the best interests of the client. A registered investment advisor has additional duties of ongoing duty of care in the handling of the investment accounts. Investment advisors may also be granted discretionary authority – like a power of attorney – to trade your account without prior discussion and there are additional duties related to this arrangement.
These duties are laid out in numerous industry rules and notices explaining the implementation of the rules. In addition, one of the most important duty owed to investors is the firm’s duty to supervise the activity of their brokers and advisors. Brokerage firms are mandated to implement reasonable supervision and are required to have written procedures, test those procedures, and even certify annually that they have supervisory procedures that are reasonably designed to detect and prevent violations of the securities laws by the firm and its agents. The supervisory rules allow brokerage firms to be liable even when their advisors hide or otherwise attempt to circumvent rules designed to prevent fraudulent securities activity. The duty to supervise is one of the most critical investor protections that exist.
What are common types of investment misconduct that your firm handles?
Our firm handles many types of violative conduct between advisors and their clients. The common element to all claims is that the client entrusts funds to the advisor who then abuses that trust in some way leading to an investment loss. How that loss occurs takes many patterns and continues to evolve with the brokerage industry and new technology.
The other pages on this website contain more information concerning the specific types of claims and cases our firm handles but a brief description of some of the more of the more common types of claims are:
- Unsuitable Investments: All advisors must ensure that they are recommending investments and investment strategies that are appropriate for the client taking into account a reasonable investigation into the product or strategy being recommended and specific objectives of their customer.
- Breach of Fiduciary Duty: Advisors and brokers have certain fiduciary obligations to their clients. Investment advisors have additional duties. A fiduciary is required to act in the best interests of their client.
- Investment Fraud through Material Misrepresentations or Omissions: advisors must refrain from making material misrepresentations, including misrepresentations by omission of material information. Advisors are obligated to disclose all known information and all information that could be known through a reasonable investigation of the investment that is material to their client to make an informed decision.
- Failure to Supervise: Brokerage firms are obligated under the Securities and Exchange Act to supervise their representatives. Reasonable supervision is an affirmative defense to a charge of failure to supervise which the firm must prove in order to rebut the claim. Unregistered Securities & Selling Away: These claims often are made in tandem although it is possible to sell away and still sell a registered security. Selling away, the common name to private securities transactions, occurs when a financial advisor offers securities that are not approved for sale by their firm. This type of misconduct is most dangerous to the health of an investor’s savings.
- Borrowing Client Funds & Promissory Notes: Advisors in virtually all circumstances are prohibited from borrowing client funds or engaging in loans to or from clients. Many of the cases we have handled concerning borrowing of client funds are in the form of promissory notes that the broker provides to the client obligating the broker to repay the client. Sometimes these notes are tied to specific investment projects like real estate while other times other times these notes are just obligations of the broker. These arrangements are highly problematic and not likely authorized by the brokerage firm.
- Theft of Funds (Misappropriation): stealing client funds is a criminal offense in addition to a civil wrong. Often times brokers will create fraudulent account statements or other misleading financial statements to cover up the fact that the broker has withdrawn client funds or deposited client funds into their own account. In these circumstances there may or may not be an investment recommendation that accompanies the theft of funds. Regardless, either the investment is completely fictious or the account statements are phony and the money is gone.
- Elder Financial Abuse: Elder financial fraud is one of the fastest growing problems in the United States today. Elder abuse takes many different routes in the financial industry. In some instances, financial advisors prey upon the vulnerable to obtain funds. In other scenarios the misconduct or criminal conduct is caused by third-parties which interact with the brokerage firm and its agents in order to obtain their clients funds and are not stopped by the firm.
- Ponzi Schemes: A Ponzi scheme is investment fraud where the fraudster steals or loses investor money and then uses new investor money to pay the returns promised to the original investors. Once the new money runs out all investors lose their investment. Ponzi schemes may last months or decades but always collapse.
- Churning (Excessive Trading): Churning occurs when a broker rapidly trades an account to generate commissions disregarding the client’s objectives.
Common Investment Products that Result in Investor Losses?
A financial advisor can abuse any type of security or financial product and harm their clients. However, there are certain types of investment products that are more commonly abused then others and investment strategies that are far more risky than the average investor is willing to accept. In our practice many of the most egregious violations occur where the financial products recommended are either overly complex, illiquid, opaque, or private.
The other pages on this website contain more information concerning the specific types of claims and cases our firm handles but a brief description of some of the more of the more common types of claims are:
- Variable Annuities
- Equity-Linked Notes (ELNs)
- Leveraged Exchange-Traded Funds (ETFs)
- Real Estate Investment Trusts (REITs)
- Private Placements (Regulation D)
- Promissory Notes
- Structured Products
- Penny Stocks
- Equity-Indexed Annuities
- Oil & Gas Private Placements
- Options Trading - Iron Condor - Yield Enhancement Strategy
How Do Investment Fraud Lawyers Help Clients and Evaluate Claims?
Our firm’s attorneys know how to evaluate potential investment fraud claims. If you have suffered serious investment losses you should contact an investment fraud attorney to determine if there are viable avenues for recovery.
Our attorneys may take different steps to review and investigate the conduct at issue for your individual case. Some of the information that is commonly sought by our attorneys in reviewing your potential claims are:
- The financial documentation of your investments and losses;
- Evidence of your relationship with your financial advisor such as account statements and opening account forms and agreements;
- Written or verbal representations that were made to you concerning the investments;
- Names of all key players in the incident that led to the investment losses.
- Other records and information that may be relevant for your unique case.
With this information our attorneys will be able make some preliminary determinations as to if and how a case could proceed and what types of claims and damages could be sought.
Investors who have suffered losses are encouraged to contact us at (800) 810-4262 for consultation. At Gana Weinstein LLP, our attorneys are experienced representing investors who have suffered securities losses due to the mishandling of their accounts. Claims may be brought in securities arbitration before FINRA. Our consultations are free of charge and the firm is only compensated if you recover.