borker fraud

Fraud in the Time of COVID-19: Red Flags of Investment Fraud

Apr 6, 2020

Whenever there is a stock market crash, such as in the COVID-19 stock market crash, fraud that has been hidden for years can come to the surface. This is particularly true for investment scams. This happened with Bernie Madoff. The stock market crashed, and people wanted access to their money. That was when they learned from the first time that the money they thought that they had safeguarded with Madoff was, in fact, just an illusion. It turned out that Madoff was running a plain old Ponzi scheme. When no new money was coming in to pay off old investors, Madoff’s multi-year Ponzi scheme finally came to light. The Coronavirus market crash will bring to light many investment wrongs and fraudulent or negligent conduct which has gone undetected during the great bull market. As long as investments were going up, many investors were not fully aware of unsuitable investments, improper margin risk, or fraudulent conduct. Scams Can, and Do, Happen Sadly, there are always going to be people who try to take advantage, who try to take shortcuts, who try to make an easy dollar, who try to cash in even if it means taking advantage of others. It does not matter whether you are a novice with finances or a very sophisticated investor. There are unscrupulous people out there, and when it comes to money, people often make the wrong, even criminal, choice. Of course, that is the reason why we have laws, and why there are regulatory bodies like the Securities and Exchange Commission (“SEC”) or FINRA to try to protect investors from the unscrupulous practices of some investment brokers.   That said, it is infinitely better to “nip something in the bud” before it becomes a problem that requires using FINRA, filing a lawsuit, or calling the authorities. The way to avoid investment scams, then, is to keep a sharp eye out for those “red flags” that tell you that there is something fishy going on. Below, we will discuss the 5 red flags of investment fraud that should help you separate those above-board investment brokers with those who might be trying to take advantage of your trust.     If, after reading this blog, you have additional questions on broker negligence or broker fraud, we invite you to contact broker fraud attorney Melanie Cherdack. Ms. Cherdack is a broker fraud attorney who understands the plight of those who were victims of investment fraud. As a former Wall Street attorney, she has “seen it all” when it comes to the schemes that investment brokers use to defraud their clients. We invite you to contact us today on our online contact form, or by calling 888-768-2499. 1. Promises of Unrealistic, Guaranteed or Excessive Returns. This first red flag is an important one to keep in mind. It is just human nature to want to believe something when it comes to growing your finances, even if it sounds too good to be true. Even the most stable investments will fluctuate when the market is volatile or is in “bear market” territory as the market is in now.   So, when your investment advisor […]

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margin call in your brokerage account

Has the Stock Market Crash Forced a Margin Call in Your Brokerage Account?

Mar 30, 2020

When the stock market quickly moves down, as it has been doing during the coronavirus market crash, you may find yourself in a situation where your stocks are sold to pay back a loan that a brokerage firm made to you. This is called a “margin call.” A margin loan is a loan that the brokerage firm makes to you that is secured by the investments in your account. Some people do not even know that they have a margin in their brokerage account, and only first become aware of this fact when they are forced to pay a margin call or maintenance call. Many new account documents that you are asked to sign when you open a brokerage account allow for the securities firm to make a margin loan to you for the purchase of securities in your account. Therefore, you should review your brokerage account statements carefully to determine if you have a margin debit or a margin loan in your account. The Securities and Exchange Commission has published an investor bulletin explaining to investors how margin accounts work.  The Difference Between Cash and Margin Accounts A “cash account” is a type of brokerage account in which the investor must pay the full amount for securities purchased. An investor using a cash account is not allowed to borrow funds from his or her broker-dealer in order to pay for transactions in the account.   In contrast, a “margin account” is a type of brokerage account in which the broker-dealer lends the investor cash, using the account as collateral, to purchase securities. Margin increases investors’ purchasing power but also exposes investors to the potential for larger losses.   You Should Understand How Margin Works Margin loans are a tool that allows customers to leverage their accounts to make a greater return. Let’s say you buy a stock for $50 and the price of the stock rises to $75. If you bought the stock in a cash account and paid for it in full, you’ll earn a 50 percent return on your investment (your $25 gain is 50% of your initial investment of $50). But if you bought the stock on margin – paying $25 in cash and borrowing $25 from your broker – you’ll earn a 100 percent return on the money you invested (your $25 gain is 100% of your initial investment of $25). You may also owe your broker interest on the $25 you borrowed. There is a downside to using margin, which is riskier than a cash account. If the stock price decreases, you can quickly lose your money. For example, let’s say the stock you bought for $50 falls to $25. If you fully paid for the stock, you’ll lose 50 percent of your money (your $25 loss is 50% of your initial investment of $50). But if you bought on margin, you’ll lose 100 percent (your $25 loss is 100% of your initial investment of $25), and you still must come up with the interest you owe on the loan. Many investors cannot afford to takes this type of gamble with their funds. Your […]

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Whistleblower

SEC Awards $7 Million to Whistleblower

Mar 9, 2020

The Securities and Exchange Commission (“SEC”) recently announced an award of more than $7 million to a whistleblower whose information and assistance were critically important to the success of an enforcement action. The whistleblower provided extensive and sustained assistance, such as identifying witnesses.  According to the SEC press release, “The whistleblower’s information and assistance helped the SEC staff devise an investigative plan, craft document requests, and ultimately bring an important enforcement action focusing on serious financial abuses.” Since its first award in 2012, the SEC’s Whistleblower program has awarded approximately $394 million to 73 individuals. This money is funded by an investor protection fund established by Congress that is financed entirely through monetary sanctions paid to the SEC by securities law violators. No money has been taken or withheld from harmed investors to pay whistleblower awards.   Whistleblowers may be eligible for an award when they voluntarily provide the SEC with original, timely, and credible information that leads to a successful enforcement action. Whistleblower awards can range from 10 percent to 30 percent of the money collected when the monetary sanctions exceed $1 million.  You May Have the Right to Recover as a Whistleblower. The Whistleblower provision was established by the Dodd-Frank Act which was passed in the wake of the great recession. Among the Act’s achievements are the creation of the SEC’s Whistleblower Office and the SEC Whistleblower Program. This program offers awards to eligible whistleblowers who provide original information that leads to successful SEC enforcement actions with total civil penalties exceeding $1 million.  In order to recover as a whistleblower, your tip must provide original information which caused the staff to open an examination or investigation, or the original information significantly contributed to a successful enforcement action where the matter was already under examination or investigation Will I be able to submit a tip anonymously to the SEC Whistleblower Office?  The answer is yes, but only if you have an attorney represent you in connection with your submission. Hiring an attorney to represent you in connection with a whistleblower claim can help you through the process while maximizing the likelihood that your identity is not revealed to outside parties. As set forth in the Dodd-Frank Act, the SEC protects the confidentiality of whistleblowers and does not disclose information that could reveal a whistleblower’s identity. It would be very difficult for the SEC to continue to receive the best tips on fraud if it did not take steps to protect whistleblowers’ confidentiality. As an example, in the most recent case, the SEC will often issue whistleblower awards and provide no information about the whistleblower or even the case number of the related enforcement action.  What employment protections are available for SEC whistleblowers?  Under Dodd-Frank, which created the SEC Whistleblower Program, employers cannot discharge, demote, suspend, harass, or in any way discriminate against employees for raising concerns about a potential securities-law violation.  Do I Have to be an Employee or Former Employee to file a Tip? No. Award recipients have also included investors who had been victims of the fraud, professionals working in the same or related industry, or other types […]

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Protection of Vulnerable Investors

Proposed Law Aims to Protect Elderly and Vulnerable Investors

Feb 24, 2020

Last week, the Florida House of Representatives unanimously approved an amendment to the securities laws to be titled the and Act for the Protection of Vulnerable Investors. The proposed law is designed to protect vulnerable investors, including persons who are more than 65 years old, but younger persons are included as well. Under the proposed bill, a vulnerable adult is a person 18 years of age or older whose ability to perform the normal activities of daily living or to provide for his or her own care or protection is impaired due to a mental, emotional, sensory, long-term physical, or developmental disability or dysfunction, or brain damage, or the infirmities of aging.  This provision is similar to other “hold and report” laws which have recently been adopted by many other states. These laws protect brokerage firms from being sued for freezing accounts and notifying a trusted contact and authorities where they have a reasonable belief of “financial exploitation” of a vulnerable investor by another. The proposed legislation applies where money or securities are taken out of an account or trades are made in the brokerage account of a vulnerable investor. The Florida House of Representatives unanimously approved the legislation, and it is widely believed that the bill will pass the Florida Senate. The proposed legislation currently is pending before the Rules Committee of the Florida Senate and must receive approval from that committee before it goes to the full Florida Senate for a vote.   Under the proposed Protection of Vulnerable Investors law, a securities dealer or investment adviser may place a hold of up to 15 business days on a transaction or distribution if it reasonably believes that financial exploitation of a vulnerable adult has occurred or been attempted, or is occurring or will be attempted. The proposed legislation permits a brokerage firm to extend the hold for up to 10 additional business days if the firm’s review of the underlying conduct continues to support the hold. The identical bills pending in the Florida House of Representatives and Florida Senate require the firm, within three business days, to report the initial hold to the Florida Office of Financial Regulation (OFR), as well as all persons authorized to transact business in, and any designated trusted contact for, the vulnerable investor’s account. The firm also must notify OFR of any extension of the original hold.    FINRA Also Has Rules to Protect Elderly or Vulnerable Investors The brokerage industry’s own regulators have put similar safeguards into place to protect elders or mentally incapacitated customers from financial exploitation. The Financial Industry Regulatory Authority (FINRA) allows broker-dealers to put a hold of up to 15 days on the disbursement of funds from seniors’ accounts if they believe that an individual is being financially exploited. Another recent attempt to prevent elder abuse is “trust contact” forms. Firms are now required to ask their retail clients to provide the name and trusted contact and provide information for a person who can be contacted in the event of suspected financial exploitation.  The 2018 Senior Safe Act protects brokers and their firms from liability when reporting possible exploitation to […]

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investments

Investments That Are Too Good To Be True, Probably Are: Here Are 4 Ways To Tell

Feb 17, 2020

Working with an investment broker is the same as going to the auto shop to get your car fixed. Now, you might be wondering: How on earth is an auto mechanic at all like an investment broker? Well, it all comes down to trust.    Investing with Someone Is a Matter of Trust Think about it. Most people don’t know a thing about the inner workings of a car, and the more computerized cars become, the harder it is to know how to fix something with your car yourself. You are essentially at the mercy of the auto mechanic who works with cars on a daily basis. Indeed, when you go to pay your bill after the mechanic fixed whatever funny noise your car was making, it is likely that the mechanic will describe the problem using names of car parts that are alien to you. In sum, you are trusting your mechanic to have fixed the problem and not padded your bill with unnecessary costs.   That is the same experience most people have with investment brokers. You are not an expert in investments (if you were, you would be doing your own investing). Yet, the details of the stock market, and the various investment instruments out there can get confusing pretty quickly. So, you trust your investment broker to put your money in investments that will result in reasonably safe returns. Just like with the auto mechanic, there are plenty of unknowns. Thus, there is a level of faith that you put in your investment broker.   The problem comes when the investment broker, or your auto mechanic, is dishonest  and betrays that trust. With cars, the only real way to know whether the mechanic has betrayed your trust is if the car breaks down. By contrast, there are some “red flags” that will tell you ahead of time if an investment option, or offer, is something you should avoid.   In this article, we will talk about 4 ways to know that an investment is too good to be true, and therefore, should be avoided. If, after reading this blog, you would like to learn a little more about getting an investment fraud attorney to help you with your situation, we welcome you to call former Wall Street attorney Attorney Melanie Cherdack.   Investment fraud attorney Melanie Cherdack understands the plight of those who were victims of investment fraud. Because she has represented the investment side as a former Wall Street attorney, she has “seen it all” when it comes to the schemes that investment brokers use to defraud their clients. Contact us today on our online contact form, or by calling 888-768-2499. We are the investment fraud attorneys who will level the playing field for you.     There is Always a Little Risk, But Know the Red Flags We all know that investing always involves some risk. But you must understand that risk and it must be disclosed to you. That said, when something seems too good to be true, then you should follow your instincts and avoid it.   Here are a few tell-tale signs that an investment broker does not have […]

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religious or group based fraud

Religious Group Fraudster Charged By SEC

Feb 10, 2020

The Securities and Exchange Commission, (“SEC”) on January 29, 2020, charged a Pennsylvania man with defrauding Amish and Mennonite community members when he falsely represented how he would use their funds and by guaranteeing returns on their investments. The SEC complaint alleges that Philip E. Riehl while providing accounting services to Amish and Mennonite communities, developed his own investment program using money raised by selling promissory notes to community members. According to the complaint, over a nearly ten year period, Riehl raised approximately $60 million by promising to invest the funds in business and real estate loans to others in their religious community. As alleged in the SEC complaint, Riehl falsely claimed that two co-signers would be on every loan, and he personally guaranteed repayment of the investments with interest. The SEC further alleges that Riehl sold Trickling Springs Creamery promissory notes, investments in a dairy business that he owned, concealing from investors the company’s financial difficulties. In his 2019 letter to investors, Riehl allegedly apologized for his dishonesty, admitting  that his statements created a “false sense of security, in that such a considerable percentage of the funds were channeled into my personal projects.” Trickling Springs Creamery filed for bankruptcy in December 2019, leaving Riehl unable to pay back investors. In the press release announcing the charges, the SEC warns  that  “Promises of guaranteed returns or investments without risk are classic warning signs of fraud.” It cautioned investors who invest with someone in their faith-based community stating that “[i]t is important to learn as much as possible about your investments, even if it means questioning someone you know and trust….” What is Affinity Fraud? Affinity fraud refers to investment scams that prey upon members of specific groups, such as religious or ethnic communities, the elderly, or professional groups. The scammers who run affinity frauds frequently are – or pretend to be – members of the group. According to the SEC, they often try to fool respected community or religious leaders from the group to spread the word about the scheme by convincing leaders that a fraudulent investment is legitimate. Many times, even those group leaders become unwitting victims of the fraudster’s scheme. Affinity scams exploit the trust and personal friendships in groups of people who have something in common. Because of the tight-knit structure of many groups, regulators and law enforcement officials have difficulty detecting an affinity scam. Sadly, victims often fail to notify authorities or bring legal claims and instead try to work things out quietly within the group. This is often the case when the fraudsters have involved respected community or religious leaders to convince others to join. Many affinity scams involve Ponzi or pyramid schemes, where new investor money is used to pay off earlier investors creating the impression the investment is profitable. Such tricks are used to lure new investors in the scheme and to lull existing investors into believing their investments are safe. In reality, in most Ponzi schemes,  the fraudster almost always steals investor money for personal use. Because each of these types of investment schemes depends on an unending supply of new investors […]

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Finra attorney

Can a FINRA Attorney Help Me Recover Losses from Investment Fraud?

Feb 3, 2020

You worked hard for the nest egg you have accumulated. Understandably, you want to be extremely careful about who you trust to help you invest those assets. Of course, once you choose a securities broker or securities firm, it is that much more devastating when that firm, or the individual broker, betrays that important trust.   If you are the victim of investment fraud at the hand of an unscrupulous broker, you have options. Yet, it would be wise to get the assistance of an attorney who can help you obtain compensation for the fraud or negligence of your broker or brokerage firm. Typically, in the investment-fraud world, attorneys who help fraud victims are referred to as FINRA attorneys. The reason for that is because most disputes between customers and clients of investment firms are handled via arbitration through the Financial Industry Regulatory Authority, FINRA. The process of working with a FINRA attorney is as follows. In this article, we will talk about the role of FINRA and what a FINRA attorney can do to help you recover your investment losses. If, after reading this blog, you would like to learn a little more about getting a FINRA attorney to help you with your situation, we welcome you to call Attorney Melanie Cherdack.   Former wall street lawyer Melanie Cherdack understands the plight of those who were victims of investment fraud. She has “seen it all” when it comes to the schemes that investment brokers use to defraud their clients. Contact us today on our online contact form, or by calling 888-768-2499. We are the investment fraud lawyers who will level the playing field for you.     What is FINRA? As noted, FINRA stands for the Financial Industry Regulatory Authority. FINRA does precisely what its title suggests – it regulates the financial industry. Specifically, it oversees the 3,726 brokerage firms and the over 600,000 brokers in the country. FINRA is not a government entity. It is a private, not-for-profit organization. Yet, it acts similar to a government agency in its oversight role of financial broker-dealers in the United States.   All member broker-dealers in the United States are subject to FINRA’s rules and regulations. FINRA is important to investors as it is a specific regulatory body dedicated to overseeing the complex securities industry. Rather than having a court of law adjudicate a complex securities matter, the FINRA forum appoints arbitrators who have the necessary securities or business expertise to more easily grasp the legal issues surrounding allegations of investment fraud.   That all means that if a particular broker or broker-dealer engages in conduct that violates FINRA’s rules and that  violation causes investment losses, then you as the investor have a right to file a complaint with FINRA in an effort to get compensation for your losses.   What Can a FINRA Attorney Do to Help You? A FINRA attorney can help you seek an award in your favor for any investment losses that you suffered. The FINRA attorney would, therefore, represent your interests in a FINRA arbitration. The process of working with FINRA attorney is as follows: Begin with a Case Review The first thing […]

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elder fraud

Your Broker has Tools to Help Prevent Elder Fraud

Jan 27, 2020

The financial industry has reported that senior financial exploitation is estimated to cost savers almost $3 billion per year and that 1 in 44 cases is actually reported. Additionally, recent scientific studies have shown that financial decision making is often one of the first cognitive functions to decline  The U.S. Consumer Financial Protection Bureau reports that during the period between 2013 and 2017, seniors (over age 70) lost an average of $41,000 due to elder financial exploitation  That same report found that average losses are even higher when the scammer is a friend or relative. Seniors targeted by strangers lost an average of $17,000, while those scammed by someone they know lost an average of $50,200.The brokerage industry has put some safeguards into place to protect elders or mentally incapacitated customers from financial exploitation. The Financial Industry Regulatory Authority (FINRA) allows broker-dealers to put a hold of up to 15 days on the disbursement of funds from seniors’ accounts if they believe that an individual is being financially exploited. Another recent attempt to prevent elder abuse is “trust contact” forms. Firms are now required to ask their retail clients to provide the name and trusted contact and provide information for a person who can be contacted in the event of suspected financial exploitation. https://www.investor.gov/additional-resources/news-alerts/alerts-bulletins/investor-bulletin-finras-new-account-protection The 2018 Senior Safe Act protects brokers and their firms from liability when reporting possible exploitation to the authorities. This federal law protects covered investment professionals from liability where that person reports on the potential exploitation of a senior (defined as not younger than 65 years) to a covered agency. The immunity established by the Senior Safe Act is provided on the condition that (1) certain employees receive training on how to identify and report exploitative activity against seniors before making a report, and (2) reports of suspected exploitation are made “in good faith” and “with reasonable care.”   To help advisors detect elder financial abuse, the Securities Industry and Financial Markets Association (“SIFMA”) released a senior investor protection tool kit that helps financial professionals detect the signs of undue influence, power of attorney abuse, and other fraud.  These regulatory protections are helpful to prevent and detect fraud, but there are additional steps elder investors can make to protect themselves and their loved ones.   Create a durable power of attorney. A durable power of attorney allows the investor to assign someone to oversee their finances in the event they’re incapacitated. Create a revocable trust. A revocable trust can be established so that in the event of incapacity a co-trustee can help pay bills and protect assets. Discuss responsibilities with family. While it may be difficult, it is helpful to have discussions with relatives so that they are well aware of what accounts exist and who will be responsible in case of incapacity. If a trusted contact is designated, tell that person and let them know what bills they will be required to take care of. You might also consider having a trusted relative receive duplicate statements online or via email so they know what is happening in the account. You also can help your elderly relative or friend protect themselves […]

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investment fraud

3 Ways to Recover from Investment Fraud

Jan 20, 2020

Being the victim of investment fraud can be a catastrophic hit to you, your family, and your plans for the future. The money you have worked hard for your entire life can be taken away in an instant. Indeed, one of the best examples of how devastating the impacts of investment fraud can be is the Bernie Madoff case. Bernie Madoff perpetrated a Ponzi scheme that was based on nothing but his charm, his reputation, and the goodwill of his investment firm. As shocking as it may seem, Madoff was able to keep up a billion-dollar investment fraud Ponzi scheme for decades. The red flags were there, but the kind of power he wielded on Wall Street, allowed him to keep suspicion from the Securities and Exchange Commission (SEC) at bay. Once the Great Recession hit, however, Madoff was unable to keep up the façade. And, with surprising calmness, Madoff turned himself in, took responsibility for his massive financial crimes, and stated that he always knew the day would come when the authorities would put him in jail. Devastation from Madoff’s Actions The real tragedy, however, was not Madoff’s descent into the criminal punishment that always awaited him, but the victims left in the wake of his massive fraud. Many believe that Madoff only defrauded investors who either were too wealthy to really be hurt by Madoff’s crimes, or should have known that on some level that he was nothing but a fraudster. That, however, is far from the truth. In fact, many of Madoff’s clients were people of limited means or solidly middle-class individuals. At his sentencing, victim after victim told the court of their poverty solely because of Madoff’s crimes. There was a retired police officer who put all of his life savings into a Madoff account and was left with nothing. There was an elderly gentleman who did not know how he was going to pay for life-saving treatment for his illness without the money he invested with Madoff. And, there are thousands of other stories like that. Investor fraud lawyer Melanie Cherdack understands the plight of those who are victims of investment fraud. She has “seen it all” when it comes to the schemes that investment brokers use to defraud their clients. So, if after reading this article you want to learn more about whether you need an investment fraud lawyer for your current situation, then we invite you to contact us today on our online contact form, or by calling 888-768-2499. We are the investment fraud lawyers who will be leveling the playing field for you. Now, let us get to the 3 ways you can recover investment losses if you were the victim of fraud. 1. Mediation or Arbitration FINRA – the Financial Industry Regulatory Authority – the public/private organization that creates a forum for investors to recover damages from fraud, allows for a number of dispute resolution avenues. To be qualified to use the services of FINRA, the alleged occurrence or event forming the basis of the fraudulent act must have happened within the last six years. If that is the case, then you may want to file an arbitration with FINRA. Compared to going to court, arbitration can be a less costly, easier, and faster option to […]

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Investment Fraud lawyer

What Does an Investment Fraud Lawyer Do?

Jan 6, 2020

An investment fraud lawyer fills a very important role for someone who has been scammed by a securities broker – the investment fraud lawyer levels the playing field and fights for you. The “fights for you” part is a given – lawyers should always zealously represent their clients. However, there is something extra. The investment fraud lawyer also “levels the playing field.” Let’s discuss that in more detail.   Investment Fraud Lawyers Level the Playing Field In a nutshell, leveling the playing field means that not only will an investment fraud lawyer advocate on your behalf, but he or she will bring specialized knowledge to bear in your case. When you believe that your money was taken from you unfairly or through deception, a good investment fraud lawyer will capitalize on his or her particularized knowledge and experience in securities law to ensure that you make your case effectively and persuasively. Accordingly, we will devote this blog to discussing the kinds of things that are specific to investment fraud lawyers that you may not know. We will go into detail about what exactly “leveling the playing field” means in the context of securities disputes. In so doing, we hope that you will be better able to understand the value of what an investment fraud lawyer brings to the table.   If, after reading this article you want to learn more about whether you need an investment fraud lawyer for your current situation, then we invite you to contact us today on our online contact form, or by calling 888-768-2499. We are the investment fraud lawyers who will level the playing field for you.    1. Knowledge of the Law The first thing that an investment fraud lawyer will provide to level the playing field is an extensive knowledge of securities law.   Today, there are many specialties in the law ranging from estate planning attorneys to social security disability lawyers. Indeed, there are fewer and fewer “general practice” attorneys because each area of the law is so sophisticated. One person cannot be expected to know all the intricacies of every legal specialty. (That is why you would probably not be well served to have your brother-in-law, who is a criminal defense attorney, draft your last will and testament.)   Accordingly, when you hire the help of an investment fraud lawyer, you are getting someone who understands all the ins and outs of the federal (and, if any, state) securities laws that set the parameters for investment and securities brokers. That kind of knowledge is vital to mounting a case against an unscrupulous investment broker. Remember, any broker whom you challenge will most certainly have an experienced lawyer on his or her side. Be sure that you can match the other side by hiring an experienced investment fraud lawyer.  2. Knowledge of the Process Also in the interest of leveling the playing field, investment fraud lawyers know the process of moving an investment fraud case through the appropriate court or arbitration forum. Almost more important than knowing the law is knowing what papers to draft and file, and when to file them.   With any type […]

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