Whether you’re a seasoned investor or just starting to build your portfolio, securities fraud can cause you to suffer significant financial losses. Investment fraud schemes continue to become more sophisticated, and there’s always the risk of working with an unethical broker.
But even if you’ve suffered losses, how do you know if it’s time to hire a securities fraud lawyer? Luckily, there are several common situations that warrant such a move. If any of the following sound familiar, it’s probably time to hire a securities fraud lawyer.
1. Your Broker Violates A Securities Law Or FINRA Rule
Registered brokers in the United States must follow certain rules imposed by both the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA). As a result, stockbrokers must, among other things,
- Fulfill their fiduciary duties of care and loyalty to their clients;
- Only recommend suitable investments based on for their client’s investment profile; and
- Disclose conflicts of interest and other dealings.
A stockbroker’s failure in any of these areas may warrant hiring a securities fraud lawyer, especially if it affects your financial investments.
2. You’re Tricked Into Investing In A Ponzi Scheme
Most of us have heard of Ponzi schemes. However, because sophisticated fraudsters find new ways to dress them up, it’s very possible to get trapped in one without realizing it. At its core, a Ponzi scheme is a type of investment fraud that involves paying early investors with the “investments” of later ones.
For example, the fraudster initially recruits five investors with the promise of low-risk high-reward investment strategies. The fraudster then makes good on his promise, but there’s a catch: the dividends all come directly from the pockets of new investors.
Ponzi schemes eventually fail when the stream of new investors dries up.
If you buy into a seemingly legitimate investment vehicle only to later find out that it’s a Ponzi scheme, it’s time to hire a securities fraud lawyer. While it isn’t always possible to recover your losses, hiring an attorney as soon as possible maximizes your chances.
3. Your Broker Churns Your Investments
Brokers are typically paid on commission. Unfortunately, this provides an incentive for brokers to encourage or engage in rapid or frequent trading to generate more commissions. This process—buying and selling securities solely to generate commissions—is called churning, and it violates both securities laws and FINRA rules.
Many investors prefer to take a hands-off approach to investing, leaving most of the work to their broker. As a result, these investors may not notice that churning has occurred until much later. Fortunately, even if that’s the case they may have some recourse, and that’s when it’s time to hire a securities fraud lawyer.
4. Your Broker Lies About An Investment Opportunity
As you might expect, brokers are generally supposed to be direct and transparent about how they’re handling your money. This includes making sure you have all the necessary details to make an informed decision about any new investments your broker offers.
All too often, however, brokers misrepresent the investments they offer. Misrepresentation (and it’s sister offense, omission of material facts) are two of the most common disputes settled in FINRA arbitration. You can minimize the impact of these activities by
- Researching investment opportunities;
- Educating themselves on the potential risks; and
- Thoroughly vetting the broker before handing over any funds.
Even after taking those steps, though, misrepresentation can still happen. If it does, it’s time to hire a securities fraud lawyer.
How Do I Make Sure I Have A Good Broker?
All brokers and brokerage firms in the United States must register with FINRA before they can conduct securities transactions. As a result, FINRA is able to maintain a registration system for properly licensed brokers and firms.
Searching this system using BrokerCheck is the fastest way to vet your broker. Brokercheck allows you to view a broker’s
- Employment history;
- Current certifications and licenses; and
- History of complaints and disciplinary actions, if any.
Reviewing this information takes only a few minutes and could save you lots of time and money in the long run. Remember, you have the legal right to request your broker’s central registration depository (CRD) number, which you can use to search BrokerCheck. Any broker who is hesitant or unwilling to provide their CRD number probably isn’t worth the risk.
5. Your Broker Neglects Your Money
But wait! we hear you saying. If my broker does nothing, why would I need to contact an attorney? When a broker fails to take any action with an investor’s money, that inaction may be negligence or malpractice. If that’s the case, your broker is failing to handle your money properly, and you may have a claim based on your broker’s failure to give the appropriate amount of time and attention to your investments.
6. Your Broker Fails To Properly Diversify Your Assets
Part of any smart investing strategy is not putting all your eggs in one basket. Doing so reduces investment losses by avoiding a heavy concentration of your money in one place. In lack-of-diversification cases, the broker fails to properly diversify your assets. As a result, you may be subject to greater losses than if your investments had been appropriately spread out.
If you’ve lost a substantial amount as the result of undiversified assets, you should hire a securities fraud lawyer. They may be able to help you recover at least a portion of your losses.
Ultimately, when to get a lawyer depends on each individual case. Generally, however, any time an investment takes substantial losses and you suspect your broker is to blame, hiring an attorney is the right decision.
Keep in mind that any good investment attorney will offer a free consultation as well. Even if you’re not sure whether you have a claim, it never hurts to speak with an attorney about your situation. At the very least, you’ll get a better idea of what your options are.
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