INVESTMENT FRAUD: HOW TO AVOID IT, WHAT TO DO IF YOU ARE A VICTIM
Investment fraud falls into four general categories, learn the signs and what to do if you suspect you have beome a victim
Investment fraud occurs when a stockbroker puts his own desires for financial gain ahead of his client: You! He will make unsuitable investments, give you bad investment advice, and in some case, he will even lie to you. Because it's your money, you should become familiar enough with what makes a good investment, know what you are comfortable with in your investments, and keep an eye out on your broker's dealings with your funds. Before signing up with an investment broker, check around to be sure he is reputable, that there are no complaints filed against him, and so forth. If you suspect that you have become a victim of an investment scam or investment fraud, there are some things you can do to put a stop to it, and perhaps recover losses, or at least most of your losses.
Sources For Help In Choosing A Broker, Or If You Suspect Fraud
When selecting a stock broker, do your homework. Learn everything you can before committing yourself to one. There are plenty of online sites to guide you in selecting a reputable broker, including Broker Evaluation, Broker Rankings, and Investor Guide Broker Rankings. Financial Guide Savy will give you basic advice on all aspects of investments. If you suspect your broker has committed fraud, firms such as AttorneysForInvestors, Securities Attorneys, and Securities Law Firm will help you recover your losses.
What Constitutes Investment Fraud?
Investment fraud generally falls into four categories:
- Churning, or making a lot of small trades. This makes more fees for him, and shows up as small profits in your portfolio. It's unfair to you, as these fees come out of your pocket.
- Intentionally fails to diversify your investments, or "put all your investments into one basket." It's recommended that you diversify your portfolio for protection, so that all your investments aren't in one market. Protects your investments by not having everything tied up in one form of investment.
- Recommends stocks outside your objectives or risk tolerance. This allows the broker to push undesirable stocks, or even stocks in companies he has invested with.
- Misrepresents or omits facts about a stock, especially the risk factor; in other words, lying to you. He may cover up the risk factor, or tell you the stock is a safe bet when it really isn't.
Investment fraud can occur at the company level, or with a single employee. Investment fraud can range in size from multi-million dollar deals to penny stocks. Whatever the size of the investment, it still boils down to intentional disregard for the client's financial situation, and obsession for personal gain.
The best way to avoid investment fraud is to be an informed investor. Check out your potential advisors carefully, through the sources mentioned in this article, and with your associates. Acquaint yourself with investment practices, watch your own investments so you will know what is happening. Keep an eye on your statements, and don't give your investment broker carte blanche with your investments. It's your money. Be in control of it.