beware of fraudulent investments related to COVID-19

Beware of Fraudulent Investments related to COVID-19

Apr 20, 2020

The Commodity Futures Trading Commission (“CFTC”) has recently issued a warning to investors to be on the lookout for scams seeking to take advantage of recent COVID-19 related market volatility. The Securities and Exchange Commission (“SEC”) has also issued a recent warning to investors to be especially vigilant in investing in microcap stocks where brokers or promoters claim that a company’s products or services can help stop the coronavirus.   According to the SEC, fraudsters often use the latest news developments to lure investors into scams. There have been a number of recent Internet promotions, including on social media, claiming that the products or services of publicly-traded companies can prevent, detect, or cure coronavirus and that the stock of these companies will dramatically increase in value as a result. The promotions often take the form of so-called “research reports” and make predictions of a specific “target price.” The SEC urges investors to be wary of these promotions and to be aware of the substantial potential for fraud at this time When it comes to options investing, recent market volatility may cause fraudsters to try to promote options or futures strategies to take advantage of this market. This too has special risks which investors should be aware of. It is true that some types of options do allow traders to hedge against market risk. For example, historically, gold futures and other precious metals have seen short-term increases in times of economic uncertainty. And, over-the-counter digital asset or foreign exchange (forex) traders may be able to identify pairings that go up in value when other markets are in decline.  However, the CFTC warns that there is no such thing as a risk-free strategy, and no person or program can guarantee future results. Also, you should know that all risks, fees, and expenses should be disclosed to the investor upfront.  According to the CFTC, here are things you should look out for: If it Looks to Good to Be True, It Probably is Trading and investing come with a number of biases and emotions that influence decision making. Recent market losses due to the impact of COVID-19 may motivate some traders to recoup losses, while others may seek safety. Fraudsters know this and design their pitches to appeal to these instincts. Examples include claims of special insider knowledge or insights, promises of unusually large returns, guarantees, surefire trading signals, or low costs to open accounts. And these offers are timed to hit your inbox or social media feed when you are most interested. The common advice is “if it looks too good to be true, it probably is.” But frauds are often successful because they do look good. The problem, even for experienced traders, is that when biases get in the way, they make it difficult to recognize what’s too good.  Experienced Investors Can Often be Scammed Numerous studies have revealed that those who are more financially literate and experienced are more likely to be victimized by investment fraud. It could be correlation: Those who are more financially literate are more likely to trade and therefore more likely to encounter fraud. Or, as some researchers […]

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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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