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Investment fraud cost Americans $5.7 billion in 2024, according to the Federal Trade Commission. The FBI reported even higher numbers, with $6.57 billion in investment fraud losses filed through its Internet Crime Complaint Center that same year. Behind every dollar lost is an investor who trusted the wrong person with their savings, their retirement, or their future.
The good news: most investment scams share recognizable warning signs. Knowing what to look for can help you avoid becoming a victim, and if you have already lost money, understanding these red flags may reveal that you have legal options for recovery.
Contact The Frankowski Firm today for a free, confidential consultation if you believe you have been the victim of investment fraud. We work on a contingency basis, which means you pay nothing unless we recover your losses.
Investment fraud occurs when someone uses deception, false information, or manipulation to convince you to make financial decisions that benefit them at your expense. It can involve a stockbroker recommending investments that serve their commissions rather than your goals, an unlicensed seller promoting a fake opportunity, or a financial advisor hiding the true risks of a product.
Not every bad investment is fraud. Markets go up and down, and losses are a normal part of investing. But when a broker or advisor lies about risks, makes trades without your permission, or steers you into products designed to generate fees rather than returns, that crosses the line from a bad outcome into broker fraud and negligence.
A 2025 FINRA Foundation study found that 50% of investors failed to recognize warning signs of fraud when presented with a hypothetical offer promising guaranteed 25% annual returns. The red flags below can help you identify potential scams before you lose money.
Every legitimate investment carries some degree of risk. When someone promises guaranteed returns, especially at rates well above market averages, treat it as a warning. Even Treasury bonds, among the safest investments available, carry interest rate risk. A broker or advisor who claims you cannot lose money is either lying or does not understand what they are selling.
Scammers create artificial urgency because they know due diligence is their enemy. Phrases like “this opportunity closes tonight” or “only a few spots left” are designed to short-circuit your decision-making. A legitimate investment will still be there after you have had time to research it, consult with a trusted advisor, and read the fine print.
Federal and state laws require most people who sell securities to be registered with FINRA and their state securities regulator. If someone selling you an investment cannot provide their registration credentials, that is a serious red flag. You can verify any broker or advisor through FINRA’s BrokerCheck tool at brokercheck.finra.org or the SEC’s Investment Adviser Public Disclosure database.
If you cannot understand how an investment works after a clear explanation, proceed with caution. Some fraudsters use complexity as a shield, making their scheme sound sophisticated so you feel embarrassed to ask questions. Others refuse to share details about how returns are generated. A legitimate advisor should be able to explain any investment in plain terms, including the specific risks involved.
Markets fluctuate. A portfolio that shows steady, positive returns month after month, even during downturns, is a classic sign of a Ponzi scheme. Bernie Madoff’s fund famously reported consistent returns for decades before its collapse. If your account statements never show a losing month, ask questions.
One of the clearest red flags is trouble getting your own money back. If your broker or advisor keeps finding reasons to delay withdrawals, pressures you to roll over your returns into new investments, or stops returning your calls when you ask for a distribution, your money may already be at risk.
Review your account statements every month. If you see trades you did not authorize, or if your account shows far more transactions than you expected, your broker may be churning your account to generate commissions. Excessive trading is one of the more common forms of broker misconduct, and it can erode your portfolio even when individual trades appear profitable.
Brokers and financial advisors have a legal obligation to recommend investments that are suitable for your financial situation, risk tolerance, and goals. If you are a retiree who needs stable income and your advisor puts your savings into high-risk speculative products, that may be a suitability violation. Similarly, if your portfolio is heavily concentrated in a single stock or sector, your advisor may have failed their duty to help you maintain proper diversification.
If any of these warning signs sound familiar, call The Frankowski Firm at 888-741-7503 for a free case evaluation. You may have legal options for recovering your losses.
Understanding the most common fraud schemes can help you identify them before they cause damage. Here are several types of investment fraud that securities attorneys encounter regularly.
In a Ponzi scheme, the operator uses money from new investors to pay returns to earlier investors. No actual investing takes place. The scheme collapses when the operator can no longer recruit enough new money to cover the promised returns. These schemes can run for years before detection, and early investors may even receive genuine-seeming returns that are actually funded by later victims.
A broker who trades excessively in your account to generate commissions is engaging in churning. The red flag here is often visible in your statements: high transaction frequency, large commission charges, and a portfolio turnover rate that does not match your investment strategy.
Sometimes brokers recommend investments that are not approved or monitored by their brokerage firm. This practice, known as selling away, removes the protective oversight that firms are required to provide. These outside investments often carry higher risk and may not be registered with regulators.
Financial advisors who hold a fiduciary responsibility must put your interests ahead of their own. When an advisor recommends products that pay them higher commissions instead of lower-cost options that would serve you better, they may be committing a breach of fiduciary duty. This can be difficult to spot without comparing fee structures across similar products.
The FBI reported $5.8 billion in cryptocurrency investment fraud losses in 2024 alone, a 47% increase from the prior year. Social media has become a primary channel for these scams. The FINRA Foundation found that 72% of investors who follow social media personalities for investment advice were willing to invest in a fraudulent offer. Be especially cautious of unsolicited investment tips that arrive through social media, dating apps, or messaging platforms.
Before committing money to any investment, take these steps to verify that the opportunity and the people behind it are legitimate.
If you have identified warning signs of fraud in your investment accounts, acting quickly can make a significant difference in your ability to recover losses. Here is what to do.
Document everything. Gather your account statements, trade confirmations, correspondence with your broker or advisor, and any marketing materials you received. Keep copies of emails, text messages, and notes from phone conversations.
File a complaint. Report suspected fraud to FINRA, the SEC, and your state securities regulator. You can file a complaint with FINRA through its online complaint center, and with the SEC through its Tips, Complaints, and Referrals portal. These reports create an official record and may trigger regulatory investigations.
Consult a securities attorney. An attorney who handles investment fraud cases can review your situation and explain your legal options. Most securities cases are resolved through FINRA arbitration, a process specifically designed for disputes between investors and brokerage firms. Unlike traditional litigation, FINRA arbitration is typically faster and does not require a jury trial.
Yes, in many cases, investors who have lost money due to broker misconduct, fraud, or negligence can recover their losses through FINRA arbitration or civil litigation. The key factors include the strength of the evidence, the solvency of the broker or firm, and whether the claim is filed within the applicable statute of limitations.
The Frankowski Firm has represented over 2,000 investors in FINRA arbitration proceedings, recovering millions of dollars in losses caused by broker fraud, unsuitable margin trading, variable annuity fraud, and other forms of misconduct. The firm works on a contingency fee basis, meaning clients pay no upfront costs and owe nothing unless the firm successfully recovers their losses.
Brokerage firms also have a responsibility to supervise their brokers. When a firm’s failure to supervise allows misconduct to occur, the firm itself may be held liable for investor losses.
Schedule a free, confidential consultation with The Frankowski Firm to discuss your case. Call 888-741-7503 or use our online contact form. There is no cost to learn whether you have a claim.
Investment fraud affects people across all income levels, ages, and backgrounds, but some groups face disproportionate risk.
Older adults are frequently targeted because they often have accumulated significant savings and may be more trusting of financial professionals. The FBI’s 2024 data identified adults over 60 as the largest age group targeted for cryptocurrency investment fraud. If you suspect that an elderly family member is being financially exploited, our article on elder financial abuse by financial advisors covers the warning signs and legal protections available.
New or inexperienced investors may struggle to distinguish legitimate opportunities from scams. The FINRA Foundation study found that investors with lower financial knowledge were significantly more susceptible to fraudulent offers.
Social media-influenced investors face elevated risk as well. Those who follow influencers or online personalities for investment advice were far more likely to fall for scam offers in the FINRA study.
A bad investment loses money due to normal market risk. Investment fraud involves deception, misrepresentation, or misconduct by a broker, advisor, or promoter. If your advisor lied about risks, made unauthorized trades, or recommended investments designed to generate commissions rather than serve your goals, you may have a fraud claim regardless of whether the underlying market moved against you.
FINRA arbitration claims must generally be filed within six years of the event that gave rise to the dispute. State and federal statutes of limitations may be shorter. Because timing matters, consult with a securities attorney as soon as you suspect misconduct.
Many securities fraud attorneys, including The Frankowski Firm, work on a contingency fee basis. This means you pay no fees upfront and owe nothing unless the firm recovers money for you. The firm assumes all case costs and risks.
You can represent yourself in FINRA arbitration, but the process involves legal procedures, discovery, and evidentiary hearings that can be difficult to manage without experience. Brokerage firms almost always have experienced legal teams representing them. Having a securities attorney who understands the arbitration process can significantly improve your chances of a favorable outcome.
Bring your account statements (at least 12 months), trade confirmations, any correspondence with your broker or advisor, marketing materials or pitch documents for the investment, and a written timeline of events. The more documentation you provide, the more accurately an attorney can evaluate your claim.