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FINRA Offers Tips for Recovering from Investment Fraud

March 17, 2023 Blog

From bank failures to fraud perpetrated by major brokerage firms like Merrill Lynch and Morgan Stanley, retail investors have a lot to be worried about in 2023. Unfortunately, even if you invest with a broker or investment advisor, you are not immune from the risks of investing. Negligence, unsuitable investment advice and outright broker fraud are all very real concerns, and many brokerage firm and investment advisory firm clients find themselves in the position of needing to recover fraudulent investment losses.

Understanding What Constitutes Investment Fraud

As an individual investor, it is important to understand what constitutes investment fraud. While most people think of Ponzi schemes and theft of investors’ assets when they hear the term “fraud,” there are many other forms of fraud as well. In fact, a broker’s or investment advisor’s conduct does not need to be intentional in order to constitute investment fraud. Failing to conduct adequate research, making unsuitable investment recommendations and negligently overconcentrating an investor’s portfolio in a particular asset class are all forms of investment fraud as well—and they are all forms of fraud for which investors can (and should) seek to recover their losses in FINRA arbitration.

FINRA’s Six Tips for Recovering Fraudulent Investment Losses

The Financial Industry Regulatory Authority (FINRA) oversees the U.S. securities industry alongside the Securities and Exchange Commission (SEC), and it provides an arbitration forum through which defrauded investors can seek to recover their fraudulent investment losses. In light of the significant and pervasive risks facing investors in 2023, FINRA recently published an article discussing six steps that investors can take to recover from investment fraud.

Here is an overview of FINRA’s six tips, along with our lawyers’ additional insights on how to deal with fraud as a retail investor:

1. Create an Investment Fraud File

As FINRA explains, if you have reason to believe that you may be a victim of investment fraud, you should “[s]tart by collecting all relevant documentation concerning the fraud in one file that you keep in a secure location.” This includes collecting any hardcopy records you may have in your possession as well as preserving copies of all emails and other electronic communications you have received from your broker or investment advisor. If you have access to your brokerage or advisory account online, you should also print out copies of your account statements dating as far back as possible, and you should download your brokerage agreement and any other documents that may be available through your account as well.

2. Know Your Rights

As a victim of investment fraud, you have clear legal rights. Federal and state laws prohibit all forms of broker and investment advisor fraud, and these laws provide investors with the right to seek various remedies when they suffer fraudulent investment losses. These remedies include not only recovery of their principal but compensation for their lost investment returns, interest, costs, fees and other losses as well.

Additionally, investors who work with brokers and advisors have the right to recover their losses in FINRA arbitration. Under FINRA’s rules, all registered firms and investment professionals must submit to arbitration for the resolution of investor disputes. Arbitration provides a streamlined and cost-effective alternative to pursuing damages in court, and defrauded investors can engage counsel to represent them in FINRA arbitration at no out-of-pocket cost.

3. Report the Fraud to Regulators

FINRA recommends that investors report all instances of suspected fraud to the appropriate authorities. Along with FINRA and the SEC, these may include the North American Securities Administrators Association (NASAA) and U.S. Commodity Futures Trading Commission (CFTC), among others. If you are not sure where or how to file a fraud report—or if you are unsure whether you are a victim of investment fraud—you can (and should) consult with a lawyer before pursuing any sort of formal legal action.

4. Report the Fraud to Law Enforcement

According to FINRA, “Reporting the investment fraud to law enforcement is important to begin the recovery process, ensure the responsible parties are investigated, and prevent further damage to other individuals.” Depending on the laws that are implicated in your case, you may need to report the fraud to a local law enforcement or district attorney’s office, your state’s attorney general, or a federal law enforcement agency like the Federal Bureau of Investigation (FBI) or U.S. Department of Justice (DOJ). Here, too, a lawyer can help, and we strongly recommend that you consult with a lawyer before reaching out to any local, state or federal law enforcement authorities.

5. Consider Your Options

While reporting investment fraud to regulators and law enforcement can help prevent similar cases in the future, it does not serve as an avenue to financial recovery. To recover your fraudulent investment losses, you will need to hire a lawyer to represent you. While, as FINRA notes, litigation and arbitration are both possible options, recovering fraudulent investment losses involves pursuing FINRA arbitration in most cases.

When you hire a lawyer to represent you, your lawyer will advise you regarding the best path forward. Your lawyer will also thoroughly assess all potential grounds for recovering your investment losses, and your lawyer will formulate a case strategy focused on helping you secure the maximum possible financial recovery as quickly as possible.

6. Follow Up

Finally, FINRA recommends following up with regulators and law enforcement after 30 days. When you hire a lawyer to represent you, your lawyer can handle any necessary interactions with regulators and law enforcement as well. Ultimately, as a victim of investment fraud, you need to prioritize your financial recovery, and the best way to do this is to put an experienced lawyer on your side.

Discuss Your Options with an Investment Fraud Lawyer at Zamansky LLC

Do you have reason to suspect that you may be a victim of investment fraud? If so, we encourage you to contact us promptly for more information. To discuss your options with a lawyer at Zamansky LLC, call 212-742-1414 or tell us how we can reach you online today.

Client Reviews

“Jake Zamasky and his colleagues represented me in a FINRA arbitration case against a large multinational bank and succeeded in obtaining an award for the full amount of my investment losses. I would highly recommend the Zamansky firm for their experience in securities litigation, their level of detailed research and case preparation, and their ability to effectively fight for what’s right.”

Richard R.

“Throughout my entire case, Jake Zamansky was incredibly responsive and spent time walking me through each step of the process. He is professional and worked with my challenging schedule, even meeting with me nights and on weekends. He knew exactly which turn to take when it came to my case and yet was respectful of any decisions I wanted to make resulting in a positive outcome.”

Donald A.

“Jake Zamansky and his firm represented me in a FINRA arbitration case to recover investment losses. Jake and his team were very professional and worked very hard preparing for trial and then reaching a substantial settlement of our case. I would highly recommend them.”

William E.

“Jake Zamansky represented me in a FINRA arbitration case which allowed me to recover a substantial portion of investment losses. He is truly an expert in this space and I would highly recommend him to those investors who may have been been a victim of investment fraud.”

Chris K.

“Jake and his team did a great job communicating with me throughout the process of my lawsuit. I would recommend him to anyone looking to sue UBS for unethical practices.”

Mike A.
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