Representing Aggrieved Investors Nationwide

Types of Investment Fraud

Investment fraud can take a variety of forms. It may involve your financial advisor, stockbroker, or a third party. It could also be the result of a brokerage firm’s negligence or failure to supervise. Regardless of the type of investment fraud you suffered, you should still consult with an attorney before filing any claims.

Common types of investment fraud:

• Unauthorized trading – When a stockbroker fails to obtain client authorization before making a transaction, they may have engaged in unauthorized activity. It is important to review your account frequently to ensure that you consented to any trading completed on your behalf.

• Unsuitability – One of the most common forms of investment fraud is when a stockbroker makes unsuitable recommendations. All investment recommendations or strategies must be suitable based on the customer’s investment profile.

• Misrepresentations or omissions of material fact – If a broker or broker-dealer fails to disclose risks associated with a particular investment or conflicts of interests, they may be held legally responsible for resulting losses.

• Churning or excessive trading – The Financial Industry Regulatory Authority (FINRA) prohibits excessive trading or churning when a large number of trades is done, not to benefit the client or their portfolio but to generate commissions or to defraud the customer.

• Breach of fiduciary duty – Breach of fiduciary duty occurs when a person in a fiduciary relationship fails to act in the best interests of their client or beneficiary. A stockbroker or financial advisor is in a fiduciary relationship with an investor and must act in their best interests.

• Overconcentration – Stockbrokers and financial advisors have a duty to ensure that a client’s portfolio is not over-concentrated in a single asset class or market sector. Failure to diversify can result in substantial losses to an investor.
  
  
• Failure to supervise – Under FINRA Rule 3110, a brokerage firm is required to“establish and maintain a system to supervise the activities of its associated persons.” Failure to supervise can result in liability.
  
  
• Pyramid/Ponzi schemes – A Ponzi scheme is an investment scam that pays existing investors with money generated from new investors. A pyramid scheme is an illegal business model that generates money by recruiting new participants. Both scams usually lack a genuine asset or investment and promise high returns with little or no risk.
  
  
• Pump and Dump schemes – A pump and dump scheme occurs when promoters make false or misleading statements in an attempt to boost the price of a stock. Once the price has increased, the bad actors dump it flooding the market.
  

It is important to note that this list is not exhaustive. There are many forms of investment and securities fraud that could affect your financial stability. It is essential to discuss any losses directly with an investment fraud lawyer as soon as possible.