Stockbroker Fraud: Some Tips to Help Mature Investors Beat the Sharks

While this blog series addresses a study contracted by FINRA (Financial Industry Regulatory Authority) in 2007 targeting investors age 55-64, the information contained herein is a warning to all inventors by your friendly neighborhood fraud lawyer, regardless of your age. [1] This survey was intended to document behavioral norms in regards to risk and openness to investment pitches. In this study, some very disturbing information was uncovered relating to how trusting we are and how easy it is to talk people into investing in a corporate fraud. I hope by exposing some of the findings of this report I can encourage all of you to take steps to protect yourself before you invest. There is no such thing as being too diligent in your research in order to protect yourself and your family from the enormous losses suffered by those who have been the unfortunate victims of securities fraud.

Shocking Statistic #1. About 80% of those taking part in the survey didn’t check their broker for previous law violations, and 70% didn’t check their broker’s registration. In previous blogs I have written about how you can check both of these and what you should check for. Contact FINRA BrokerCheck’s toll-free number at (800) 289-9999, or visit FINRA BrokerCheck, to learn whether the broker is currently registered with FINRA, and other important details about who you are considering investing with.

Shocking Statistic #2. Approximately 65% of those who participated in the study didn’t check to see if the investment itself was registered. Even if the broker is registered, the investment may not be, and an investment that is not registered does not publicly file the vital reports you need to make sure the investment is right for you and your personal risk management goals. Unregistered investment products are very risky, regardless of what someone promises you, because there are no numbers available to the public to check and see what the company is actually doing. This is a key factor to most investment fraud. After all, if the numbers aren’t made public, you can pretty much report whatever you’d like to your investors based on your income goals.

Shocking Statistic #3. About 40% of the total number of participants, but almost 60% of those who had already been victims of investment fraud, chose a broker based on the recommendation of a relative, friend, neighbor or co-worker. Word of mouth is great when looking for a better laundry detergent but, when your family’s future economic growth (or failure) is at stake, you’ve got to do your own personal research. A cousin may say “Oh, yeah, I thoroughly researched him before I started to invest with him”, but what if he didn’t and now his need to save face with you has led you down a road of investment fraud and heartache. A neighbor may have invested with a broker for the last 10 years, but that doesn’t mean something hasn’t changed at the brokerage firm without your neighbor’s knowledge. People make false promises for a myriad of reasons, not all of them malicious, but you have to take the necessary steps to ensure a happy investment future for yourself. Never rely on someone else for knowledge you can gain yourself.

Shocking Statistic #4. A third of those surveyed, but 70% of the victims of securities fraud surveyed, made an investment based on the advice of a relative, friend, neighbor or coworker. Please see “Shocking Statistic #3.”

Stay posted as we continue our walk down the darkened, crime riddled streets of securities fraud and what you can do to protect yourself from it.

S. David Anton is a member of Public Investors Arbitration Bar Association (PIABA) the preeminent national wide organization of attorneys who represent brokerage firm customers in disputes with the industry.  He is also a Certified Securities Arbitrator with the Financial Industry Regulatory Authority (FINRA), formerly NASD and resolves disputes between investors and stockbrokers, investment advisers and their firms. He has been practicing law since 1985 and representing brokerage firm customers since 1999.  He is a Tampa, Florida based attorney who can handle securities arbitration anywhere in the U.S.