How To Protect Yourself From Being A Victim Of Securities Fraud

Securities fraud. You hear those words, and you get a chill up your spine. You picture the devastating financial consequences of becoming a victim, from losses in the hundreds of thousands of dollars, or losing your entire retirement savings. But, do you really know what it is, or how to protect yourself, the best you can, from becoming a victim?

This article explains exactly what securities fraud is, common examples to watch out for, and finally actions you can take to protect yourself from this financial threat.

What Is Securities Fraud?

There are a wide range of activities that can constitute securities fraud. After all, there is no shortage of creative con men and scammers out there ready to make a quick buck (or million) off you. However, at its core securities fraud involves one of two things.

First, and most commonly, securities fraud can involve deceiving investors in some way. This type of fraud can be prevented if you take actions so that you’re not taken in by the lies and falsehoods told to you.

The second type of fraud involves manipulating the financial market. Since markets run on information, typically this involves feeding the market or the general public false information that makes investors, in general, misjudge the true value of a stock or other security. However, there are also other forms of manipulation as well.

legal matters

Photo source:

Common Examples Of Securities Fraud To Be Aware Of

One of the most common types of securities fraud that has been around for many years, and in many forms, are the promises of getting a high return for low or no risk. These are typically called “high yield investment frauds” or “too good to be true” investment opportunities.

As the saying goes, if it sounds to good to be true it probably is. In investment there really isn’t any way to get high returns, especially those that are guaranteed, without a great deal of risk involved. If there was everyone would be rich, and we know that’s not the case.

Another form of securities fraud that we used to believe was rare, but unfortunately we are finding more common than originally thought, especially since the 2008 financial crisis, are Ponzi schemes.

These schemes, at their core, take money from later investors to pay earlier investors, with the scammer skimming money off the top. They eventually collapse under their own weight as more and more investors have to be brought in to keep the fraud going. However, before they are discovered these schemes often look legitimate through the use of fake paper trails and because early investors are getting returns on their investment. Of course, those early investors think those returns are coming from the alleged investment when in fact all those returns are coming from funds from later defrauded investors.

Finally, a third common type of securities fraud involve losses of typically less money, but can be just as financially devastating depending on how much you’ve been defrauded of. They’re called “advance fee schemes” and they involve the fraudster letting you in on a great investment, but needing “fees” first, such as a processing fee or taxes for example. Once you’ve sent the money for the fees you’re left with nothing since there was no investment to begin with.

Tips For Protecting Yourself So You Don’t Become A Victim

There is nothing you can do that will one hundred percent guarantee you won’t be the victim of securities fraud. As can be seen from those taken in by the Bernie Madoff Ponzi scheme, for example, some very smart and sophisticated people have been the victims of securities fraud.

Therefore, if it happens to you don’t be ashamed, but report it to law enforcement, the SEC and state securities regulators right away.

However, these tips can help you lessen your chances of becoming a victim, and prevent you from losing your life savings to fraud.

•    Be alert for offers that sound to good to be true, because they typically are.
•    Do your own independent investigation of various investments before putting any of your money into them. Do not just accept, at face value, the information and returns on investment that the solicitor tells you.
•    Be quite skeptical of unsolicited investment offers.
•    Never assume that people are who they say they are, or represent the company they say they represent, when speaking to someone on the phone or through email, if they contacted you unsolicited. Instead, do some background investigation of the company itself, and also confirm the employment of the person you spoke to.
•    Don’t feel pressured to buy something immediately from someone using high pressure sales tactics.
•    Don’t provide confidential information such as credit card or social security numbers to someone over the phone or through the Internet, especially when they contacted you unsolicited.
•    Get information in writing, of all offers and also of financial information, such as prospectuses, financial statements, and offering circulars.
•    Check with both federal and state securities regulators to investigate the company and see if there are any complaints. Similarly, you can investigate individual brokers or entire brokerage companies through FINRA’s broker check.
•    Get a second opinions from your own trusted attorney or financial advisor before investing in anything else.

Mark Fryman is an investment fraud attorney.  When he’s not researching stock broker fraud cases, he enjoys running, playing cards and watching the Indianapolis Colts win on Sundays.

Speak Your Mind


Spam protection by WP Captcha-Free