Investment Fraud


Advice from an Experienced Investment Fraud Attorney

The term “investment fraud” can mean many different things. It includes Ponzi schemes, unauthorized trades, account churning, and the failure to accurately describe the risks of a recommended investment, among other types of misconduct.

Ponzi schemes are a type of investment fraud in which the fraudster attracts investors with the promise of steady earnings, but in reality pays out the “earnings” using money received from newer investors. Probably the most notorious Ponzi scheme was committed by Bernard Madoff. There are certain “red flags” that can alert investors to the possibility that they have invested in a Ponzi scheme. For example, if a financial advisor promises—and delivers—unusually high or steady returns, no matter what the market conditions, that is a reason to be cautious. No investment strategy is perfect and if the results that are promised or delivered seem too good to be true, it’s time to ask questions. Another warning sign is if the investment advisor cannot clearly explain the strategy he or she is employing or explains that it is “proprietary” or a “black box.” If you think you have been a victim of a Ponzi scheme, speak with an experienced investment fraud attorney at Zamansky LLC.

Unauthorized trades are trades undertaken by your financial advisor without specifically discussing the trades with you or without having received written authorization to exercise “discretion” over your account.

Account churning occurs when your financial advisor engages in trading designed to maximize fees and commissions received by the broker, rather than to generate a positive outcome for you, the investor.

Every investment involves risk. A failure to properly describe an investment occurs when a financial advisor emphasizes the potential benefits of an investment without honestly disclosing the risks. This can occur in many different circumstances and, as with most things in life, always keep in mind that if an investment sounds too good to be true, it probably is.

There are federal and state laws, as well as rules issued by the Financial Industry Regulatory Authority (FINRA), to prevent financial advisors and other financial industry professionals from committing investment fraud against their clients. Under these laws, victims have different legal remedies depending on what type of investment fraud has taken place.

In nearly all cases, investors who have been defrauded by a financial advisor must bring a securities arbitration proceeding at FINRA in order to seek recovery for their losses. Arbitration is a streamlined adversary proceeding in which an investor (called a “claimant”) files a written complaint against a financial advisor and/or his or her employing brokerage firm (called a “respondent”) and a panel of arbitrators hears and decides the case. A detailed discussion of the arbitration process can be found here.

If the investment fraud was committed by someone other than a financial advisor at a brokerage firm—for example a bank, a company issuing stock or other securities or a hedge fund—then the victim can bring a proceeding in state or federal court. The case can be brought either as an individual case or as part of established securities fraud class action. A detailed discussion of our class action practice can be found here.

Our website includes in depth information on specific types of investment fraud. We strongly encourage you to read this information to gain a fuller understanding of what financial advisors may and may not do. If you have questions, or suspect your financial advisor has committed any type of investment fraud, contact our law firm today for a free consultation with an investment fraud attorney.