Investment Scam

Am I the Victim of an Investment Scam?

Jul 19, 2021

If you are reading this blog, you might be wondering if you’re the victim of an investment fraud or scheme. More and more, fraudsters are coming up with new scams to extract money from helpless victims. These victims come from all walks of life. In our offices we see investment fraud victims ranging from school teachers, customer service reps, athletes, engineers, doctors, and even  sophisticated lawyers who have been scammed. No one is immune from securities fraud. In fact, one of the most wide reaching frauds involving the famed Wall Street securities guru Bernie Madoff prayed mostly on wealthy and successful business people. So, if you feel you have been scammed, don’t blame yourself. Anyone can fall prey to a crafty securities fraudster.  There are some typical types of securities scams to look out for. The Securities and Exchange Commission has highlighted them through  investor education posts.  Some of the more common types are: Affinity Fraud In affinity fraud, a fraudster targets  members of an identifiable group, such as members of a religious organization, club or people having the same ethnic background. The fraudster often is – or pretends to be –  a member of that group. In order to capture investors, they often use the group’s leaders to get others to invest in the scheme, convincing them that the investment is legitimate and profitable. These community leaders are often also the victims of the scam they promoted. Affinity fraud scams, such as religious scams, work because they exploit the trust and friendship of the group’s members. Also, sometimes they do not come to the attention of law enforcement because of the close and private structure of many social or religious groups. Also, due to those relationships, many securities fraud victims try to work things out privately within the group instead of getting authorities involved or suing the wrongdoer.  Affinity scams commonly  involve “Ponzi” or pyramid schemes whereby new money from new investors is used to pay out earlier investors, thus making the investment seem legitimate within the group. Advance Fee Fraud In an advance fee fraud, the perpetrator will ask investors to pay an up front fee – in advance of receiving any proceeds such as money or stock– before receiving payment from the upcoming  deal. The payment in advance is often characterized as a fee, commission, or  an  expense that will be repaid to the investor at a later time. Sometimes an  advance fee scam will  target an investor who’s already bought and suffered a loss in a security by offering  to sell that security for the investor if an “advance fee” is paid upfront. In this type of scam, fraudsters may tell the investor  to wire the advance fees to an escrow agent or a lawyer attempting to make this scheme appear legitimate. Another tactic is the use of official-sounding websites and e-mail addresses.  Some types  of advance fee frauds can involve the offering of products, investments, lottery winnings, or “found money” which belongs to the victim.  Binary Options Fraud Today, most binary options are traded through Internet-based platforms which aren’t complying with applicable U.S. regulatory. The SEC has […]

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robinhood fined

Robinhood Fined For Improper Options Trading Approval for Customers Under 21

Jul 5, 2021

On June 30, 2021 FINRA announced that it has ordered Robinhood Financial LLC to pay approximately $70 million dollars for its system-wide supervisory failures and widespread harm  inflicted on its millions of customers.  The consent order includes a  $57 million fine as well as approximately $12.6 million in restitution payments to thousands of affected Robinhood customers. These penalties amount to the single largest financial fine ever ordered by FINRA. The SEC has previously fined Robinhood for other misstatements and non-disclosures.   FINRA’s investigation uncovered a number of regulatory violations  committed by Robinhood including  its providing of false or misleading account information, its March 2020 systems outages, failures to report customer complaints, and its improper approval of thousands of unqualified customers for options trading—many of whom were under 21 years old. Taking a swipe at Robinhood’s stated goal of innovating and “demystifying finance for all,” FINRA reiterated that all brokerage firms must comply with the stated rules governing the brokerage industry. These  rules, stated FINRA, have been put in place to protect both investors as well as the integrity of the stock markets, and cannot be overlooked simply because a firm seeks to innovate securities trading.  Robinhood’s Bots Improperly Approved Young Customers for Options Trading In its order, among other things,  FINRA found that Robinhood failed to exercise the required due diligence before approving its customers for options trading. Because Robinhood relied on computer algorithms known as  “option account approval bots,” there was very limited oversight by the firm’s options principals as required by FINRA rules. Because of this obvious lack of human oversight, the automated bots often approved customers for options trading based on both inconsistent or illogical information. The use of these bots led to Robinhood’s improper approval of thousands of its customers for options trading. These customers should not have been approved for options trading because they either did not satisfy the firm’s options eligibility criteria, or their  accounts contained red flags alerting the firm that  options trading may be inappropriate for them. Many of these customers were under 21 and had represented to Robinhood that they had at least three years of options trading experience, when in fact they were prohibited from trading in  accounts when they were under 18 years of age. Robinhood’s System for Options Approval Did Not  Look all Available Information  Since allowing options trading on their platform beginning in December 2017, Robinhood’s system for approving customers for such options trading has been almost entirely automated. This is true for all levels of options trading provided by Robinhood. Level 2 approval  for options trading allows for basic options trading, including cash-secured puts as well as covered calls. Level 3 approval allows for more advanced trading, such as engaging in options spreads. In conducting the analysis for its customers to be approved to trade options, Robinhood’s bots review customer responses to numerous eligibility questions, and then automatically (and in most cases almost instantaneously) either approve or reject the customer’s options application based on the responses. FINRA found that because those bots failed to look at all the account  information available to the firm, Robinhood’s has  […]

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Investment Fraud Attorney

How Can An Investment Fraud Attorney Help Me?

Jun 28, 2021

If you are reading this blog, chances are you have suffered losses in an investment and believe that you have been the victim of investment fraud. However, it is not always the case that investment losses are caused by fraud. To have a claim for investment fraud you must be able to establish that there was a misrepresentation, or an omission, of a material fact to you  regarding the investment and that  you relied upon that misrepresentation in making or maintaining the investment, leading to monetary loss. Investment fraud can be perpetrated through oral statements as well as through written materials, or by information published on the internet. It can be accomplished by both making a false statement or by omitting facts that should be disclosed. What to Look for In Hiring an Investment Fraud Attorney When looking for an attorney to bring your investment fraud case, it’s crucial that you find someone who has experience in this area.  This is because, in most cases, you must arbitrate your investment fraud case through FINRA (the Financial Industry Regulatory Authority). If you lost money in your  investment  account at a brokerage firm such as Merrill Lynch, Morgan Stanley, UBS, Charles Schwab and even a self-directed account on an app such as Robinhood , your account agreement likely contains an arbitration agreement requiring that your claims be arbitrated through FINRA. The claims in FINRA are subject to the FINRA Code of Arbitration Procedure which sets out the procedures to be followed. Hiring an investment fraud lawyer who knows these rules, as well as one who is familiar with the arbitration process, can maximize any recovery you might get in your case. When deciding whether to hire an  investment fraud attorney, you should ask  the following questions to be certain that you’ve found the right attorney to  help recover your investment fraud losses. You should ask these things: 1. WHAT’S  YOUR EXPERIENCE? While there are lots of attorneys advertising on the Internet that they handle investment fraud cases,  there are very few of them who have actually have 20 or more years of experience handling FINRA arbitration cases—which is the place where most cases are required  to be arbitrated if you’re suing a brokerage firm or stockbroker. Be sure that you discuss with the prospective lawyer just how many investment fraud cases that attorney has handled and exactly how many years of experience that attorney has worked in this legal area.  An experienced investment fraud lawyer will more than likely know the lawyers who regularly represent the defendant brokerage firms, and these relationships are important to advancing your case to hearing as well as in  settlement discussions. Additionally, an experienced FINRA arbitration attorney will also be familiar with the pool of FINRA arbitrations who might be deciding your case. Knowing which arbitrators to select (and most importantly who not to select) to hear your potential case can go a long way in affecting the results of your case. Also , hiring an attorney who knows the special  FINRA discovery process  knows what documents and information to ask the brokerage firm to ask for […]

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financial advisor

Can I Sue My Financial Advisor / Stock Broker Over Losses?

Jun 21, 2021

Most people who come to our law offices have relied on a financial advisor to help them invest and protect their money. While we have seen hundreds of unsophisticated and inexperienced investors lose money as a result of the negligent or intentional actions of their financial advisors, they are not alone. Generally, no matter how educated an investor is, if they are not savvy in the securities markets or know about the products sold,  they will rely on their securities broker to provide them with investment guidance and insight.  We have seen doctors, lawyers, accountants, scientists, and financial professionals who have been the victims of financial fraud or broker negligence. Often, these people blame themselves for being duped.  But this is not the reality.  The truth is that securities professionals receive advanced education and training, and must pass a series of exams as well as obtain certain licenses, in order to sell securities to the public. So, it is quite understandable that their customers rely upon them for sound and unbiased advice, and to protect them from financial harm in accordance with their specific investment objectives.  The Most Common Reasons For Suing Your Financial Advisor for Investment Losses Just because you lost money in your brokerage account does not give you the right to bring a claim against your stockbroker. You also need a valid legal claim.  Brokers and financial advisors can be sued in their professional capacity for a number of types of claims or causes of action. The most egregious types of these claims against stockbrokers involve forgery, theft, and elder fraud. In the more garden variety types of claims, negligent brokers steer an investor’s money into risky, inappropriate, or unsuitable investments, generally motivated by the promise of higher commissions. Our lawyers handle a broad variety of investment fraud and broker negligence cases. Some of the more common types of cases that we see involve: 1. Conflict of Interest: Under the Regulation Best Interest Rule, your broker or investment advisor owes a duty to not put their own interests ahead of yours. The  Regulation Best Interest rule borrows principles from fiduciary duty concepts. It was established to align the broker’s standard of conduct with their retail customer’s  reasonable expectations by requiring that they “act in the best interest of the retail customer at the time the recommendation is made, without placing the financial or other interest of the broker-dealer ahead of the interests of the retail customer.” 2. Breach of Fiduciary Duty: A broker’s fiduciary duties to its customers include, among others,  that of recommending a stock only after studying it sufficiently to become informed as to its nature, price, and financial prognosis; carrying out orders promptly and in a manner best suited to serve the customer’s interests; informing the customer of the risks involved in purchasing or selling particular security; refraining from self-dealing; not misrepresenting any material facts to the transactions, and transacting business only after receiving proper authorization from the customer. 3. Unsuitable Investments: Brokers and financial advisors can only recommend securities that fit within their customer’s specific investment profile. The suitability rule states that the […]

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financial advisor

Does My Financial Advisor Have a Conflict of Interest?

Jun 14, 2021

The Securities and Exchange Commission (“SEC”) recently adopted a new rule which established a standard of conduct for brokers and their firms when making recommendations to retail customers. This includes recommending both a securities transaction or recommending any investment strategy which involves securities. This new rule is called “Regulation Best Interest”. The  Regulation Best Interest rule was established to align the broker’s standard of conduct with their retail customer’s  reasonable expectations by requiring that they “act in the best interest of the retail customer at the time the recommendation is made, without placing the financial or other interest of the broker-dealer ahead of the interests of the retail customer.”  The Regulation Best Interest rule also addresses conflicts of interest by requiring brokerage firms to establish, maintain, and enforce policies and procedures that are reasonably designed to both identify as well as to and fully and fairly disclose material facts about conflicts of interest. In cases where disclosure is deemed insufficient to reasonably address any conflicts of interest, the rule requires that steps must be taken to mitigate or eliminate the conflict. Importantly, the standards of conduct established by Regulation Best Interest rule cannot be satisfied simply through disclosure alone.  In enacting this standard of conduct, the SEC borrowed from key principles underlying two fiduciary obligations, including those that applied to investment advisers under the Investment Advisers Act of 1940 (“Advisers Act”).  To align the duties owed to retail customers of both  broker-dealers and  investment advisers, the  SEC mandates that retail investors are entitled to a recommendation (from a broker-dealer) or advice (from an investment adviser) that is in the clients’ best interest. This means that the advice or recommendation does not place the interests of the firm or the financial professional ahead of the interests of the retail investor.  Under the Regulation Best Interest rule, a conflict of interest is defined as “an interest that might incline a broker, dealer, or a natural person who is an associated person of a broker or dealer—consciously or unconsciously—to make a recommendation that is not disinterested.” Regulation Best Interest Applies to  All Recommendations  What is a recommendation? Deciding whether a broker-dealer has made a recommendation triggering Regulation Best Interest turns on the specific facts and circumstances of each case. Factors that are considered in determining whether in  fact  a recommendation has been made include whether the communication “reasonably could be viewed as a ‘call to action’” and “reasonably would influence an investor to trade a particular security or group of securities.” The more tailored to the customer or targeted group of customers the communication about a security or group of securities is, the greater the likelihood is that it may be viewed as a “recommendation.” Type of Account recommendations  Regulation Best Interest expressly applies to account recommendations including recommendations of securities account types generally (e.g., to open an IRA or other brokerage account, or an advisory account), as well as recommendations to roll over or transfer assets from one type of account to another (e.g., from a workplace retirement plan account to an IRA). There are many different account types within brokerage firms. […]

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Is Your REIT A Bad Investment?

Jun 7, 2021

Real Estate Investment Trusts (“REITs”) are common income generating investments bought by individual retail investors.  REITs are defined as a company or investment trust that retains diverse portfolios of real estate assets.  A REIT both owns and operates real estate with 90% of the generated income paid out to its shareholders as dividends. They are popular as they are designed to provide  a steady payout of dividends which investors are attracted to when interest rates are low. Risks Associated with REITs Non-Traded REITs are not publicly traded investments. Because these REITs aren’t traded on any public exchange (such as the NASDAQ) it can be very difficult for investors to find out current information as well as prices. Non-traded REITs are generally “illiquid” making it very hard for investors to sell. Publicly traded REITs, those that are traded on an exchange, are subject to losing value when interest rates rise.  How REITs Operate  Since REITs are required to pay returns of at least 90% of their taxable income out to their shareholders,  they generally pay out a higher yield as compared to other market alternatives. This makes them particularly attractive when interest rates are low. While some REITs focus on a particular real estate sector, others invest in more diverse holdings. REITs are allowed to invest in many different types of real estate including: Residential apartment complexes Healthcare buildings Hotels and resorts Commercial office buildings Self-storage buildings Shopping centers and malls REITs provide the investor an opportunity to earn dividend-based real estate income while not having to buy the actual underlying property. They are popular because the investor can participate in real estate opportunities without the headaches associated with being a property owner. If a REIT has a proven and experienced management team, a good track record, and owns desirable properties, it can be a successful investment. But, there are many pitfalls and risks to investing in  REITs that investors should be informed about before buying any REIT. Risks of Non-Traded REITs Non-Traded REITS, also known as non-exchange traded REITs, do not trade on a stock exchange. Because of this, there are special risks associated with them. Share Value Because they are not listed on any exchange, investors are generally unable to perform research on these REITs. Significantly, it’s very difficult to determine the true price or value of the REIT’s. Its also hard to find out what assets the REIT holds at any given time.  Lack of Liquidity When an investment is “illiquid” this means that there may not be buyers available when an investor wants to sell their REIT. Also, often the investor is prohibited from selling the REIT for a period seven years. While some REITs will all investors to redeem a small portion of their investment after one year, there is usually a cost to doing so. Distributions The way that a REIT operates is that it has to pool the investor’s money to buy and manage properties. Sometimes, if there is not enough income generated from the property, the REIT may end up  paying out dividends from other investors’ money. When this happens, this can limit […]

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FINRA arbitration process

What Is The Discovery Process In A FINRA Arbitration?

May 31, 2021

If you are wondering what the discovery process is for an arbitration action before the Financial Industry Regulatory Authority (“FINRA”) chances are that you are considering the hiring of a FINRA arbitration attorney. While the discovery process is relatively simple and streamlined, an experienced FINRA arbitration attorney knows exactly what documents to seek that will help you to prove your case. Discovery in FINRA is limited to a document exchange and, absent in some very limited situations, there are no depositions or pretrial testimony allowed. Therefore, it is very important to know what documents to ask for and how to get these documents through the FINRA discovery process. Overview of the FINRA Discovery Process The FINRA discovery process is designed to allow the parties to get the necessary facts and information from the opposing party in order to prove their case as well as to prepare for the final arbitration hearing.  Importantly, the FINRA Customer Code of Arbitration Procedure (“Code”) requires that the parties cooperate fully in a voluntary exchange of documents and information in order to expedite the arbitration process. The Code contains special prehearing and discovery rules, which address making discovery requests,  responding to the request, objecting to the discovery requests, and the arbitrator’s authority to impose sanctions against parties for not cooperating in discovery.  The FINRA Discovery Guide FINRA has issued a Discovery Guide for investor disputes containing guidelines to assist parties and arbitrators. In the most recent update to the Guide in 2013, FINRA set forth a detailed introduction section providing guidance with respect to producing electronic documents. It also explains how “product cases,” wherein a specific product or investment is the cause of the loss,  differs from other types of customer cases and sets forth the types of documents that are typically sought in such cases. Finally, the introduction clarifies the specific circumstances where a party might request an “affirmation” as to the efforts made to locate documents when an opposing party does not produce certain documents which are deemed discoverable under the  Guide. Responding and Objecting to Discovery  There is a FINRA rule regarding how a party may respond to Discovery Requests (including those specified in the Guide) if such requests are overly burdensome, seek irrelevant documents, or involve confidential or privileged information.  Until an objection is overruled by an arbitrator, the objecting party does not have to provide the documents or information requested.  The objecting party must state clearly in writing which the party is objecting to and the grounds for that objection. Motions to Compel  The FINRA rule on motions to compel requires that the parties first make an attempt to resolve their discovery issues with the opposing party and to describe these efforts in the motion. If, however,  the parties cannot agree as to how to resolve their discovery disputes, then the party seeing the documents can file a motion to compel seeking an order requiring the production of the requested documents. A motion to compel is simply a request for the arbitrators to issue an order requiring the production of documents and information.    In the motion to compel, the requesting party should […]

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Investors Against Climate Risk

Can the SEC Help Protect Investors Against Climate Risk?

May 3, 2021

With climate change at the forefront of investor’s minds these days, you might wonder what the top regulators are doing to ensure that such interests align with the duties of corporate boards.

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Cryptocurrency investments

Risk of Fraud in Cryptocurrency Investments & How Attorneys Can Help

Apr 26, 2021

It seems as if everywhere you look, there is some news article on cryptocurrency. Virtual currencies, such as Bitcoin, have recently become popular and were initially created to serve as a type of money or payment system.

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Investment Fraud Protect

How To Stay Protected Against Investment Fraud?

Apr 19, 2021

Many people contact our law firm after they have been victimized by investment fraud. Often, they blame themselves for trusting the fraudster or believing the sales pitch. The truth is that just about anyone, no matter how smart or educated they are, can fall prey to investment fraud. There are certain steps, however, that you can take to protect yourself before making an investment. Verify That The Investment Is Registered Most investment opportunities or products also need to be registered. You can go to your particular state securities regulator’s website to see if your investment and the broker selling it are registered in the state where you live. The website for NASAA, the North American Securities Administrators Association, has an interactive map where you can look up the contact information for your state’s securities regulators. This organization has also published a list of signs of fraud which you should look out for. Below are a few of those, as well as some additional red flags to consider when making any investment.  Beware of Promises of Guarantees or Quick Profits Experienced con artists know what appeals to people. If it sounds too good to be true, it most likely is. The higher the return, the higher the risk. Other than a few government backed securities such as CDs and money market accounts, there is no such thing as a “no risk” investment. In fact, even when an investment is sold based upon a “guarantee,” that guarantee is only as good as the company behind the guarantee. A good example of this is Lehman Brothers Principal Protected Notes. Many folks bought these notes thinking they were fully protected by the guarantee that their principal investment would be returned. In fact, however, when the over 150-year old Lehman Brothers filed for bankruptcy in 2008, that guarantee vanished. As the SEC has warned, “any guarantee that your principal will be protected—whether in whole or in part—is only as good as the financial strength of the company that makes that promise.” Be Suspicious About High-Pressure Sales Tactics You should be particularly suspicious of individuals who tell you that you must act now or that this is a limited time offer which will end very soon. This is a trick used by fraudsters  to get you to invest quickly without you doing any investigating or weighing the risks.  In a legitimate investment, you should always have the opportunity to read the materials, understand your investment and make an informed decision.  If it’s a real deal, it’ll be there tomorrow. This type of sales pitch is used to create a false sense of urgency, whether it’s a limited amount of the investment product or a scarcity of time to invest. Don’t feel pressured to make a quick decision. Take your time and talk it over with an objective third party, someone who can check the facts regarding the investment opportunity. Beware Of Unsolicited Offers Have you ever received a call out of the blue offering an amazing investment opportunity from someone you don’t know? This very well could be a warning sign of a scam. Always treat […]

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