If you are like many Pennsylvania residents, you are looking for a way to grow your money through investments. While banks and other financial institutions may be paying a decent interest rate, you may want to increase your return on the investment of your funds. This is why many folks seek out debt or equity options that promise far greater returns than you will get from a CD or mutual fund. However, these often come with greater risks, especially of securities fraud. When this happens, you could be faced with the loss of all or most of your investment funds. If you believe that you have been the victim of securities fraud, an experienced securities law attorney can assist you in protecting your rights and going after those who you believe have wronged you.
What is Securities Fraud?
Securities fraud is a broad category of different deceptive practices used to target investors. Some schemes can be small, focused on a specific group of people, while others can be quite broad. The common factor is that they use the purchase or sale of stocks, bonds, and other securities in order to defraud investors.
One of the most common types is the Ponzi scheme. Named for Charles Ponzi, a con artist who operated in the 1920s, this scheme involves promising investors a high rate of return on their investment. But in actuality, the operator takes the new money that comes in to pay the earlier investments to create the illusion of a profitable investment. Eventually, the operator will run out of money or new targets and the Ponzi scheme will collapse. This is the case with Madoff who had an elaborate one involving both public stocks and unregistered securities, but it fell apart with the financial collapse of 2008.
Another type of fraud is the pump-and-dump. This is usually done with penny stocks or other registered securities that have thin trading and low stock prices. The company or a promoter will have a group of people buy and sell the stock to get the price up. At the same time, they may release false and misleading information about the company and its stock to boost interest. Then, when the stock reaches a certain price point, those involved in the scheme will dump their shares, with the stock then dropping precipitously.
The pump-and-dump is a form of market manipulation. But sometimes brokers dealing in legitimate stocks can harm investors with securities fraud. Churning is where your broker makes excessive trades in your account in order to generate commissions. In many cases, the only one making money on these trades is your broker, and not you. You also can be the victim of scalping, where a broker takes advantage of price fluctuations in a stock for a quick profit in the commission, but only negligible returns for you and other investors.
Insider trading is a very common form of securities fraud. Some individuals may be privy to non-public, confidential information about a company or its stock. These insiders could be accountants, lawyers or other professionals, or officers and directors of a public company. They will then make trades on the information that gives them an unfair advantage. Since the investment actions of these people are often scrutinized, they will make these trades through third parties or other straw men in an effort to cover their tracks.
In some cases, the company issuing the stock may be the ones committing the fraud. For example, some companies conspire with their accountants to inflate revenue or disguise debt, painting a false picture of the financial condition of the entity.
While in many cases securities fraud involves actual, legitimate stocks and bonds, in other cases there may be outright fraud. There have been cases here in Pennsylvania of brokers embezzling client funds and then forging or altering documents to hide their thefts. Some stock promoters take an advance fee, promising to deliver securities that never appear at a later date.
We have even seen an increase of securities fraud with the use of the internet and cryptocurrencies. If you are approached by a stranger on social media or through an email, you should be wary of making any investments without proper due diligence.
What Can You Do to Avoid Becoming a Victim of Securities Fraud?
A good rule of thumb whenever you are considering making an investment is that if it sounds too good to be true, it probably is. It is vital to pay attention to any red flags before making an investment. This includes anyone unwilling to provide you with documentation of their licensure or the due diligence on the prospective investment. Many fraudsters use high pressure tactics to get you to make an investment where you may not feel comfortable. This is why you should never make an investment without receiving the proper documentation from the person offering to sell you the securities. This includes financial statements that you can review to make sure the investment is legitimate.
You should also make sure that the person offering to sell you the stocks or bonds is licensed. FINRA (the Financial Industry Regulatory Authority) licenses brokers, dealers, and others who work in the securities field. If someone is offering you a securities deal, you should make sure that he or she has the proper FINRA licensing. In addition, the United States Securities and Exchange Commission (SEC) maintains a website with important information about publicly traded companies, individuals working as brokers and dealers, and people who have been barred from working in the industry because of past findings of securities fraud. You should consider using this resource as well.
In some cases, you may be considering investing in non-public entities. These are companies that have not registered their securities. While these can be potentially lucrative deals, they are also riskier than investing in public company stocks. Therefore, if you are considering making this kind of investment, you should get the assistance of an experienced attorney or other professional to help you review the investment before giving anyone your money.
What Can You Do If You Are the Victim of Securities Fraud?
If you believe that you have been the victim of securities fraud, the first thing you should do is retain an experienced securities attorney here in Pennsylvania. This lawyer will be able to help protect your rights, while working to hold those responsible for your loss accountable through a lawsuit and by reporting the fraud to governmental agencies.
There are a number of federal and state agencies that can help you. The SEC brings civil actions against those who violate the federal securities laws, and you can contact an enforcement attorney in their regional office in Philadelphia. If the SEC believes that a crime may have been committed, it will make a referral to the local office of the FBI.
In a situation where you have been defrauded by a broker, dealer or other securities professional, you can file a complaint with FINRA. This independent agency is tasked with investigating financial professionals who break the law or violate the terms of their licenses in other ways.
There are also state agencies that will assist you if you have been the victim of a securities fraud. The Commonwealth of Pennsylvania maintains a fraud hotline for victims. You can also contact the Pennsylvania Department of Banking and Securities in Harrisburg for assistance.
One thing to keep in mind is that time is not on your side when you have been a victim of securities law. There is a two year statute of limitations on securities fraud under federal and state law. The clock starts ticking when you discover the facts constituting the fraud. Keep in mind that there is also a statute of repose that is for five years from the defendant’s last culpable act, so you must make sure to file a claim before this five year period has expired.
Contact a Pennsylvania Securities Attorney Today
Each year, investors here in Pennsylvania discover they have been the victims of securities fraud. If you believe that you have been defrauded by an issuer, promoter, broker, dealer or other securities professional, our team of experienced Pennsylvania securities attorneys at Jones Gregg Creehan & Gerace can help you get the compensation you deserve for your injuries. Contact us today for an initial consultation.