Articles Tagged with Investment Fraud

Last week, the Securities and Exchange Commission (SEC) charged two individuals in a fake day-trading scheme targeting inexperienced investors.

According to the SEC’s press release, the two men in question scammed investors out of more than $1.4 million through the operation of a false day-trading investment firm.

Luring Investors with Day-Trading

We’ve talked a lot about investment scams in the past. Fraudsters are always finding new ways to take advantage of unwitting investors. However, there are several top investment scams that fraudsters favor and which serve as the basis for many new types of investment fraud.

Investors should recognize most of these, but being able to spot signs of these top investment scams may help you in assessing new potential investment risks or signs of fraud.

Pyramid/PONZI Scheme

The Securities and Exchange Commission (SEC) has announced that investors should be on the lookout for fraudulent claims using Forms 4.

A Form 4 is filed when investment insiders (officers, directors and anyone holding 10% or more in company securities) execute transactions. A Form 4, which must be filed within two days following a transaction, serves to inform the public of the insider’s transactions in company stock and other securities.

Apparently, scammers and fraudsters are posing as brokers and providing false Forms 4 and other official documentation to investors in order to sell them fake shares. By using forms that appear to be sent from the SEC and other regulatory agencies, scammers seek to legitimize fraudulent claims.

Risk-taking is a natural part of making financial investments

These should be calculated risks, though; risks based on performance projections of whatever is being invested in.

Though financial investments should not include those unforeseen or unaccounted for risks like fraud, investors are constantly facing it.

Yesterday, in a case of investment fraud, the S.E.C. formally charged two former accounting executives with falsifying the financial performance of a real estate investment trust. It is alleged that the former executives of VEREIT Inc., then known as American Realty Capital Properties (ARCP), purposefully and knowingly overstated quarterly earnings by inflating figures in a key accounting metric used by investors and analysts to assess the financial performance.

Former Chief-financial-officer, Brian S. Block and former Chief-accounting-officer, Lisa P. McAlister attempted to defraud investors by manipulating how the company’s adjusted funds from operations (AFFO) were calculated. AFFOs are used by accounting analysts as a non-GAAP measure to further asses the investment value of a company. They are used by companies in addition to mandatory generally accepted accounting principles (GAAP) enforced by the S.E.C. While these non-GAAP methods usually serve to provide a more detailed assessment of a company’s financial performance, fraudulent claims mislead investors as to the viability of  their investments.

In this case, the AFFO was used as the primary company measure for providing earnings guidance to its investors. Though the company had, in fact, fallen short of its projected earnings for the quarter, the former executives concocted the investment fraud scheme to conceal those figures before issuing their earnings statement. Investment fraud like this not only jeopardizes investors’ capital, but also severely damages a company’s credibility and good market standing.

It seems that mosquitoes aren’t the only thing people will have to watch out for on the Zika front. As with any public crisis, the outbreak of the Zika virus has come with the threat of investment fraud in tow. Crooks and scam artists exploit crises like this one by preying on public anxieties. This sort of behavior is not only detrimental to victims of investment scams, but also further clouds public perception of a crisis by circulating false information.

As such, the Securities and Exchange Commission (SEC) has issued an Investor Alert in an effort to prevent anyone falling victim to financial fraud. The SEC’s investor alert covers several tips and warning signs to know if you may be getting involved in an investment scam.

  • Unregistered investment professionals

svEven the most careful and diligent investors can get stuck in an investment fraud scheme without an investment fraud attorney. Florida residents who have been victimized by an investment fraud scheme (i.e., a Ponzi scheme, stock portfolio loss, negligence on the part of your stockbroker or financial adviser) will need a Florida investment fraud attorney, and we at the Savage law firm are here to help.

While it can be distressing to learn that you have lost thousands — if not hundreds of thousands — of dollars as a result of an investment fraud scheme, it should serve as some comfort to know that both state and federal laws protect you, the investor, from negligent, unsuitable, or otherwise illegal behavior by your investment advisers and/or stockbrokers; should you be a victim of such predatory behavior, these same laws also provide that you, the investor, can seek financial remedies against those same financial advisers and stockbrokers.

Of course, it’s never as easy as just asking for your money back, and getting it. The actual process of obtaining restitution for your losses can be a costly legal battle that requires an understanding of complex state and federal laws that most laypeople (i.e., non-lawyers) simply do not have. This is why the assistance of an investment fraud attorney is invaluable.

logo-squareA pump and dump scheme is a form of investment fraud where people artificially inflate the price of stock they own, and once it has reached a certain price they will sell it before the price goes down again.  The perpetrators of such a scheme raise the stock price by creating synthetic hype around the stock. At one time this was normally done by cold calling. An individual claiming to be an expert stockbroker might randomly call people to inform them of a stock that was virtually guaranteed to go up, and that failing to invest in it would mean missing out on perhaps thousands of dollars. One variant of cold calls would be to leave a message on somebody’s answering machine or voice mail. The message is worded in such a manner that the victim believes the caller had reached the wrong number, and now has access to valuable inside information which must be acted on very quickly.
These days such fraud is more often committed online. The Internet allows for far more potential victims to be reached, over a shorter period of time. Messages might be posted on bulletin boards advising visitors to purchase the next hot stock. If enough people take the bait, the stock price will go up. Later posts might point out that the price of the stock in question has, in fact, become more expensive, which leads to even more shares being sold.
At some point the perpetrators of the scheme will sell, or dump, all of the shares. This is generally done when they are satisfied with the profits that will result. When a large number of shares are dumped the stock price plummets, usually to a price that is less than what the victims of the scheme paid, resulting in monetary losses for them. Pump and dump schemes generally target micro- and small-cap stocks, because they are most easily manipulated. These stocks do not have a great number of shares being traded, and therefore their price can be influenced by a smaller number of trades. If you have been the victim of a pump and dump scheme, please contact us today to discuss your options.

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