Investment Fraud: What It Is and How to Avoid It

Westchester, White Plains and NYC Securities Fraud Lawyer

Investment fraud, also known as securities fraud and stock fraud, occurs when a financial advisor gains an investor’s trust and abuses that trust by making false statements or omitting material statements of fact in order to cause the investor to buy or sell a security, and the investor loses money as a result.  Investment fraud victims are often over age 50.

Bernard Madoff and Affinity Fraud

On December 11, 2008, the Securities and Exchange Commission charged Bernard Madoff, the former NASDAQ Chairman, with fraud.  This may be the largest investor fraud ever committed by a single person.  Madoff admitted to defrauding investors of up to $50 billion in a Ponzi scheme, according to prosecutors.  In a Ponzi or pyramid scheme, new investor money is used to pay earlier investors to give the illusion that the investment strategy is successful.  When the flow of new money stops, the scheme fails.  Madoff allegedly told his sons that his investments were “one big lie”.  He confessed after he realized he would not be able to come up with money to satisfy requests from clients to withdraw funds.

Affinity fraud is a form of investment fraud in which scammers prey on members of a group, such as a religious or ethnic community, or the elderly.  The wrongdoers are often members of the group and often recruit respected leaders from the group to endorse them.   

Madoff’s alleged conduct is a classic example of affinity fraud.  Madoff was well-respected in the financial community and wealthy Jewish circles.  He used his reputation as a financial wizard and devoted philanthropist to gain the trust of wealthy investors and then abused that trust by stealing their money.

How To Protect Yourself From Investment Fraud

Investors can protect themselves by looking for signs of investment fraud.  If someone tells you that your profit is guaranteed or that he can get you an unusually high rate of return, you should recognize that this is a fraudulent sales pitch.  If a broker you do not know well advises you to invest with him, ask him to send information to support his statements and recommendations.  Make sure you understand the costs and liquidity before investing.  Never invest in a product that you do not understand.  Keep notes of conversations with brokers.  If you suspect that the broker is mishandling your money, immediately contact the branch manager or the firm’s law or compliance department.  If you are not able to resolve the problem that way, find and hire an experienced securities arbitration lawyer.

If You Are a Victim of Investment Fraud, You May Be Able To Recover Money

Investors who have lost money as a result of wrongdoing by a broker or firm may be able to obtain a substantial recovery.  An experienced securities arbitration lawyer can quickly evaluate the strength of your claim, discuss your options, and develop a plan for financial recovery.

Douglas Stone, Investment Fraud Lawyer

Attorney Douglas Stone has over twenty years of experience in the securities industry; as a lawyer representing investors, firms and brokers; as a FINRA arbitrator deciding investor disputes; and as a broker advising investors.  Mr. Stone has represented clients nationwide in matters involving Merrill Lynch, Morgan Stanley, Citibank/Smith Barney, Prudential, Lehman Brothers, GunnAllen and other firms.  

If you believe you have been the victim of investment fraud, you can contact the Law Office of Douglas Stone to discuss the facts and what can be done to recover your money.  Mr. Stone is available by phone toll-free at 866 720-3754 or by e-mail at dstone@dougstonelaw.com.