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What are disclosure scams?

By March 27, 2019Investment Fraud

The devil is in the details. Sometimes, it’s what your broker or financial advisor doesn’t tell you that makes all the difference.And that difference may be buried in the investment contract you signed. Sometimes, your broker simply may not tell you aloud some of the things that are in the contract you signed. However, sometimes, your broker tells something completely different from what’s in the contract, or does not tell you something very important that, if you knew, you wouldn’t sign.  A misrepresentation or omission may be a scam if your broker intentionally misleads you.


What are disclosure scams?

A disclosure scam occurs when you are told one thing in some manner, usually aloud, but you agree to something very different in the contract. Disclosure scams also occur when you are promised something, but it’s completely omitted in the contract. Disclosure scams occur when a broker intentionally tricksyou into signing a contract that says something different than you believe it does.


Why do disclosure scams work? Can’t you just read the contract?

You could, but most people don’t read contracts or read them fully. Even if you do read carefully, the contract may be very confusing, to the point where you  thinkyou’re agreeing to one thing, but are actually agreeing to another.

Contracts are long, boring, complicated, and we tend to think it’s rude to make someone wait while we read the agreement our trusted financial advisor wants us to sign.. However, the reason disclosure scams sometimes work is because people either don’t read the contract, or the contract is too complicated, technical or confusing—or is written in a way to intentionally mislead the average they don’t realize they’ve made an agreement without the benefit they thought they were getting.

For good reason, people generally believe they can trust their financial advisors.. People assume if they trust their financial advisor enough to manage their money, they can also trust them enough to not even read the investment or other contracts they are signing, and to rely on what their advisor represented to them before signing the contract. People simply believe that the contract makes “official” what was orally agreed to represented by their financial advisor.


Why do they bury the details in the contract?

Most jurisdictions in the United States, including Louisiana, apply the “four corners” rule when interpreting contracts: a court will not look at anything outside the contract to interpret the contract. In most jurisdictions, a signed contract will take priority over any other conversation or correspondence between parties, and the contract will be taken as the true intent of both parties. A party’s failure  to read a contract doesn’t make a contract unenforceable. Put simply, you can be held to a contract, even if it is not the agreement \ you expected or even wanted.

Your best defense against disclosure scams is prevention: read the contract and don’t sign anything you don’t understand. If you’re not sure what you’re signing, seek an lawyer’s’s adviceto determine if something is missing from your contract, and if so, can choose whether to ask to change the contract, or decide not to sign it at all.

But, what if you are a victim of a disclosure scam?

It’s difficult to get out of a lawful contract. However, if you believe your broker made intentional misrepresentations about the content of a contract, you may be the victim of a disclosure scam, which is fraud. 

If you think you’ve been a victim of a disclosure scam, contact Fishman Haygood today.

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