17 Warning Signs You May Be a Victim of Securities Fraud

By October 21, 2015 September 20th, 2017 Resources
  1. Your Broker has recently been the subject of multiple customer complaints and/or regulatory inquiries. FINRA maintains a public database, known as BrokerCheck, that shows a broker’s complete disciplinary and complaint history.  BrokerCheck reports most disciplinary results and customer complaints and is a good way to see if you broker has been in trouble before.  If a broker has engaged in financial fraud with other investors, he may have engaged in misconduct with you as well.
  1. Your Broker’s explanations don’t make sense. If investments in your portfolio have declined in value and your broker can’t explain why or the explanation does not make sense, you should investigate further.
  1. Your Broker sells you high commission products. Certain kinds of investments pay brokers very high compensation, and brokers sometimes recommend such investments to make more money for themselves at your expense. High commission products are typically investments like non-traded REITs, limited partnership interests, private equity type deals, annuities of various kinds, other products with an insurance feature, oil and gas investments, structured products, and certain mutual or hedge funds.
  1. The investment declines in value suddenly and unexpectedly. A sudden decline in value is often an indication of fraud of some kind. Often it signals that there have been long term misrepresentations about the investment’s value.
  1. Your Broker changes firms. Oftentimes brokers change to a new firm because they are no longer welcome at their old firm.  You may learn that the broker was “terminated” or “permitted to resign” following allegations of misconduct.
  1. You notice a trade or new investment on your statement that you do not recall. You should be immediately on your guard if you see a transaction or an investment on your statement or a sale on your statement that you didn’t discuss with your broker.
  1. The Broker fills out or signs documents/forms for you. It is common for a broker to fill in forms that reflect your investment objectives, net worth, or understanding of an inappropriate investment and then ask you to sign where marked. This practice signals something is wrong. An even worse sign is when the broker signs your name for you.
  1. Your Broker asks you to sign documents before you have had the chance to review them. Many times brokers want investors to sign documents necessary to sell an investment before the investors have had a chance to understand fully what the investment is, how it works, what the commission is, and what risks may be present.
  1. Your Broker tells you that the returns on an investment are “guaranteed.” There are very few, if any, investments that provide “risk-free” returns.  If your broker has led you to believe that your returns are fixed or guaranteed in some way, you should be very wary of such investments.
  1. Your Broker has made verbal statements that are directly contradicted by written statements that you have seen. Some brokers will cause an investor to believe that cautionary language found in documents that accompany an investment are merely “lawyer’s jargon” with which he need not be concerned.  If your broker is verbally telling you something different than what the documents state, that is a sign that he/she is not telling you the whole story.
  1. You cannot figure out how your Broker is being compensated. Many times the compensation paid to a broker is very difficult to discern because it may be built into the purchase price or being paid to the broker by a third party (from your investment) rather than directly by you.  If your broker tells you that he is not being paid for selling a certain investment to you, you should seek out more information.
  1. Your Broker is not communicating with you. If your broker is not returning your phone calls or emails, it may be that he/she is intentionally avoiding having to explain or discuss recent events relating to a problematic investment that he/she sold to you.
  1. You are invested in things that you cannot understand. When the investment is unknown to you and you can’t understand exactly how it works such that you have to rely on your broker’s assurance that it is a good and suitable investment, that is a warning sign.
  1. An investment works in a way that you did not anticipate. If you are surprised by a feature of an investment that you didn’t know about, like a early withdrawal fee you didn’t expect, that is a sign of a problem.
  1. Your net worth or income or risk tolerance is overstated on a form sent to you. Certain kinds of investments are appropriate only for investors with high levels of sophistication or income or net worth. If you see any of this information on a form and it isn’t consistent with your real circumstances or objectives, then there could be a problem and you should investigate.
  1. Your Broker is continually buying and selling different investments in your account within a short period of time without any apparent rhyme or reason. Some brokers violate a client’s trust by buying and selling investments purely for the commissions that he/she will earn.  If there are many transactions taking place in your account that you do not fully understand, you should investigate further.
  1. Your Broker provides “summaries” of your investment holdings and returns for you but you cannot understand them or you are unable to verify their accuracy. Statements of your investment and investment returns should be easy to read and understand.  If yours are confusing or misleading in some way, someone may be trying to disguise inaccurate results.

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