We occasionally receive questions regarding investment fraud and stockbroker misconduct. There’s no doubt that these areas can be a bit complex and difficult to understand. In this blog post, we will review some of the more common types of investment fraud.
This is a funding round of securities which are sold to a small number of chosen investors. What’s unique about private offerings is that they don’t have to be registered with the Securities and Exchange Commission if the issuance of the securities conforms to an exemption from registrations set forth in the Securities Act of 1933.
Distressed Real Estate Investment Scams
Maybe you’ve heard of investment pools that involve collecting money to purchase and renovate distressed properties before reselling them at a profit. As hot as the real estate market is today, it sounds like a great strategy, right? Unfortunately, the majority of these flips turn into Ponzi schemes, which we’ll discuss momentarily. It’s important to know that real estate shares must be registered with state regulators, as with other securities. So if you’re in the fix-and-flip business, check with your state’s office to see if the property has the necessary paperwork attached.
This investment fraud works by paying existing investors with funds collected from new investors. Implemented by Charles Ponzi in the 1920s, this strategy spells disaster for just about anyone involved. With illegitimate earnings, Ponzi schemes require a constant flow of new money to survive. Sooner than later, the strategy collapses when either it becomes too difficult to recruit new investors or when large numbers of investors cash out.
This tactic is often geared toward the elderly, religious, or ethnic communities. Scammers spread the word about whatever scheme they come up with and try to convince folks that it’s completely legitimate and worthwhile. As you may have gathered, affinity fraud exploits the trust and friendship that exists in particular groups of people. Affinity scams may also involve Ponzi or pyramid schemes where new investor money is used to pay earlier investors.
Self-Directed IRAs to Mask Fraud
More and more today, scam artists are using self-directed to IRA to further entice new investors. There have been countless cases where state securities regulators have found that the purpose of these self-directed IRAs was to offer credibility to a bogus venture. Note that these IRAs dupe investors into believing that their investments are legitimate and/or protected against losses.
Proxy Trading Account Fraud
A proxy trading account is an investment account where one person is authorized to control the account and make trades on behalf of another person. The proxy or “expert,” in this case, can create the account for the investor or just request their login credentials. From that point on, the proxy has control of the account and manages such account on behalf of the investor. Unfortunately, proxy trading accounts open up the door for fraud at times. Instead of offering genuine investment expertise, scam artists are only concerned with collecting usernames/passwords and then taking the money of clients.
Get in Touch with a Securities Attorney
If you believe that you’ve been a victim of any of the aforementioned types of investment fraud, it’s time to consult the securities law firm of Sadis & Goldberg, LLP. For more than two decades, our securities lawyers have been helping those in the New York and Tri State area. Our litigation attorneys routinely represent investors, investment advisors, industry professionals and brokerage firms in the financial services industry. Our practice consists of a number of reliable trial attorneys who work to achieve the best possible outcome for clients.
Sadis & Goldberg has won many multi-million dollar securities arbitrations, verdicts, awards, and settlements for clients. See what our litigation lawyers can do for you. Speak to an attorney now.