The Securities and Exchange Commission’s investor.gov website contains useful guidance to investors to help protect their hard-earned money by spotting and avoiding potential red flags of investment fraud.
As attorneys, we typically only hear from investors who have already lost money due to an unsuitable or fraudulent investment recommendation. Sometimes such conduct can be spotted by asking some questions up front and being on the lookout for warning signs that you are dealing with an unscrupulous broker.
For example, you can do some basic online research not only into a potential investment but into the broker himself or herself. Both FINRA and the SEC maintain websites where an investor can research the regulatory discipline and customer complaint history of brokers and brokerage firms. The SEC also suggests being particularly wary of unsolicited (“cold call”) investment sales pitches.
Other red flags for fraud include: investment advice that sounds too good to be true (it probably is), guaranteed returns, time pressure to take advantage of a deal before it’s too late, pitches that stress how popular an investment is with other investments, and “free lunch” seminars.
Brokers have legal duties to understand the investments they recommend and to have a reasonable basis for determining that the investment is suitable for the particular investor based on customer-specific factors such as an investor’s age, net worth, retirement status, investment objectives, risk tolerance, overall portfolio, investing experience, and time horizon, among other factors. Prudent investors should not hesitate to test their broker’s understanding of the investment being recommended and ask follow-up questions to help assure that the investment will suit the investor’s needs.
If you or someone you know lost money as a result of an unsuitable or fraudulent investment recommendation, please call the Frankowski Firm at 888.741.7503 or fill out this contact form.