How Common Is Investor Fraud?
The short and probably best answer is, far more common than you’d think. So why don’t you hear about it more? People are generally reticent to talk about money. That goes double for talking about losing money.
There are different degrees of investor fraud, ranging from the lack of alignment between your interests and those of your stock broker to the notoriety of billion-dollar scam artists like Bernie Madoff. How do you calculate a figure like this? It’s difficult. But between structural problems like a lack of fiduciary duty between investors and advisors to criminal enterprises like Ponzi Schemes, the losses to investors are in the many billions.
But let’s stick with the more mundane aspects of investment fraud. While the broker who steals $1M from his elderly clients might make the evening news, more common are forms of broker misconduct like misleading advice, churning, fee gouging, mismanagement, and negligent use of complex investment products such nontraditional ETFs. Far less sensational than theft or true fraud, misconduct taking these forms adds up to a huge redistribution of investor and family wealth — to brokers and brokerage firms.
Why Is Investor Fraud So Common?
One reason investor fraud is so common is that unscrupulous brokers exploit market volatility and a lack of financial literacy among investors to cover up misconduct and mistakes made in investor accounts. One of the things we hear all the time from brokers defending their mistakes is that clients should “wait it out, it’ll come back eventually, be patient, etc.” One of the reasons a financial advisor who has made a big mistake in an account may want you to hold on is because he or she is counting on the market compensating for the error. After all, the market has tended upward over time, and a rising tide lifts many boats (though not all).
Another factor is that smaller cases of financial fraud don’t make the headlines the way million dollar cases do. The lack of publicity around the smaller cases makes it easier for brokers with checkered pasts to fly under the radar of unsuspecting clients. While there are numerous resources out there for investors to do background checks on brokers, including especially FINRA’s BrokerCheck database, many clients remain woefully ignorant of financial advisor misdeeds — at their peril.
What to Do If You’ve Been the Victim of Investor Fraud?
The two most important things you can do if you think you’ve been the victim of broker misconduct or investment fraud are 1) contact a qualified attorney for legal advice; and, 2) notifies the regulatory authorities. A securities attorney may be able to help you recover your money, and registering your complaint with FINRA or the SEC may prevent the broker from victimizing the next investor.
Pennsylvania & New Jersey Stock Broker Misconduct Lawyers
If you or someone you know has been the victim of investment fraud or broker misconduct, please contact our securities attorneys immediately for a free consultation at 215 462 3330 or by using our online contact form.