Articles Posted in Securities Fraud

The Wall Street Journal published an article by Jason Zweig and Andrea Fuller on August 31, 2020 explaining their analysis of how financial advisers fell short in meeting their obligations to disclose important information to individual investors like you.[1] The Wall Street Journal analyzed the filings made by investment advisers on the SEC Form CRS.  The article and analysis revealed what seems to be disturbing lack of candor by investment advisers.

It is fundamental to full and fair disclosure that if an individual investor wants to know whether their financial adviser, or a financial adviser they want to hire, has any legal or regulatory problems, that this information is easy for an investor to obtain.  To that end, the Securities and Exchange Commission (“SEC”) sought to simplify the process by which an individual investor can access this information.  The result of the SEC’s efforts was the “Form CRS.”  “CRS” stands for customer (or client) relationship summary.

This information has been available.  However, for the average “Main Street” individual investor, the information was not easy to find.  And when the customer complaint and regulatory history was found, the disclosures were difficult to understand.  The Form CRS[2] was intended to address this complexity and difficulty through simplification.  Thus, the SEC created what SEC Chairman Jay Clayton said in November 2018 would be a “clear and concise” document.  I think they succeeded.  Wall Street, however, failed.

In Interactive Brokers, LLC v. Saroop, the United States Federal Court of Appeals for the Fourth Circuit made it clear that a broker’s contract that incorporates FINRA rules supports a breach of contract claim when the broker violates FINRA.  Further, this case reinforces the public policy of using arbitration to lower costs and create an efficient resolution forum for disputes.

Interactive Brokers that Saroop and two others (collectively, the “Investors”) opened accounts with Interactive Brokers where they were required to sign the contracts that provided that all transactions were subject to “rules and policies of relevant market and clearinghouses, and applicable laws and regulations.”  Interactive Brokers hired a third-party to trade the Investors’ accounts (the “Manager”).  Using the Investors’ margin accounts, the Manager invested in short-term futures, with a symbol of VXX.  The Manager sold naked call options for VXX, meaning that the Investors had the right to buy VVX at a set price until the option expired.  This works great if the market price increases but is a serious problem if the value decreases.  To make matters worse, the Manager traded using the Investors’ margin accounts.  A margin account is when you borrow money to purchase stock. This means that you can lose more money than you invested.

The high risk associated with margin trading prompted FINRA to prohibit purchases of VXX using margin.

Stock fraud is awful, but it should not surprise you that it happens.  There are bad people out there who think nothing of stealing money from anyone they can.  Stock fraud, I bet, has been happening since corporations became a thing.

Stock fraud may occur when a company defrauds investors when convincing them to buy shares in their company.  The investment fraud may be a market manipulation scheme.  It may be an unethical brokerage firm forcing their brokers to sell the ‘stock of the day’ knowing full-well the stock is not worth a fraction of what the price the sell to you.

But, perhaps the worst form of stock fraud, to my mind, is the stock fraud that takes advantage of people’s fear about current events.  Understandably, potential investors or victims of fraud are today extremely concerned and frightened about catching Covid-19.  This is especially true for that frequent target of fraudsters, older people.  Not only is this segment of the population more vulnerable to Covid 19, but their fears are likely at a higher level.  This set of circumstances just creates a more fertile ground for investment fraud that takes advantage of loneliness and fear such as we have today with the pandemic.  So, it is vital to get the word out to older people and their children or caretakers to be especially vigilant about investment fraud phone calls.

ADR abuseInvesting in international assets is a great way to diversify and strengthen your portfolio. A healthy assortment of international security assets can set you up for long term success and aid your investments in weathering market volatility. Investing in internationally-based assets is made possible through the use of American Depositary Receipts (ADRs).

An ADR is a security that represents shares of non-U.S. companies that are held by a U.S. depositary bank outside the United States. They allow you to invest in non-U.S. companies as well as provide non-U.S. companies easier access to the U.S. capital markets. Currently, there are more than 2,000 ADRs available which represent shares of companies in more than 70 countries.

While ADRs present new avenues and opportunities available to you, they – as with any security – are not without risks. As an investor, you need to perform the necessary research and due diligence on an ADR-represented security prior to investing.

The stock market is a volatile ecosystem at the best of times. Some years, investors lose trillions of dollars. At other times, the majority of investors turn a profit.

Part of the confusion is due to the complexity of the stock market. Investing in stocks has always been a specialist’s endeavor, requiring an understanding of both individual industries and the greater economy. This specialization makes rocket science seem simple in comparison in today’s rapidly shifting economy.

Are you wondering what forces are at work that causes even expert traders to lose money in the stock market? Today we’ll be focusing on securities fraud and the impact they have on the stock market.

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If you’re an investor, you know that you’re managing risks every day — no matter how you slice it.

When it comes to playing the stock market or dealing with other such high-powered investments, you’ll need the assistance of a lawyer that can watch out for your legal interests.

Whether you need another set of eyes or feel that you have a lawsuit on your hands, hiring the help of a securities attorney can give you just what you need.

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As nearly half of all Americans own no stocks at all, one of the reasons for that is that there are so many complicated laws surrounding their finance.

If your stockbroker breaks securities law, you have the right to sue. However, if you don’t know the first thing about the law, you could end up not getting the money you deserve.

Here are the four main steps to suing your broker.

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market manipulationYou know that the factors affecting an investment’s valuation go behind standard data and metrics. Often, an investment’s value can hinge largely on highly subjective factors, like public perception. The “reputation” of an asset or security can either signal an attractive investment opportunity or drive away investors.

You’ve probably heard of pump and dump schemes; a form of stock manipulation wherein essential information about an asset may be misrepresented or misreported in order to artificially drive-up its value before the scammer dumps their shares. In these types of schemes, fraudsters create a buy frenzy by promoting a stock as a desirable investment.

Well there’s also an inverse to this type of investment fraud and it’s called a short and distort scam.

Regardless of your investing experience, nobody knows everything there is to know about stock and securities trading. That’s why you have probably enlisted the help of an investment professional, either as a sounding-board for investment decisions or to assist you in facilitating and completing transactions. An investment advisor or a broker-dealer can be a great asset as you build and diversify your portfolio.

However, for all the good they can do, an investment advisor who does not have your best investment interests at heart can pose a serious risk to the health and stability of your portfolio.

How well do you know your investment advisor?

When you hire a stockbroker, you’re trusting them with your investment future. So when you suspect that your broker is scamming your account, you want to deal with the problem as soon as possible.

There are a number of ways to help recover your losses after securities fraud, but first, you need to know what your broker is doing to your account.

Here, we’re covering churning, the various types, anti-churning rules, and signs that your broker is churning your account.

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