Stock Fraud: How to know if you have a case

Stock Fraud: How to know if you have a case.

Posted on Tuesday, April 7, 2009 in Uncategorized

People have been the victims of unscrupulous investments for centuries, if not millennia. Stock brokers were required to be licensed in London in the year 1285, at least partially to prevent people from being ripped off. In 1697, the British parliament issued a report on stock fraud. It stated, in part, “The pernicious art of Stock-jobbing hath, of late, so wholly perverted the End and Design of Companies and Corporations…that the Privileges granted to them have, commonly, been made no other Use of, by the First Procurers and subscribers, but to sell again, with Advantage, to ignorant Men, drawn in by the Reputation, falsely raised, and artfully spread concerning the thriving State of their Stock.”

Put in more modern English, the report is saying that stock fraud was rampant in 17th century England. In the 1830’s, two Frenchmen were convicted of stock fraud when they bribed telegraph operators to spread false reports on their stocks. Moving forward to the twenty-first century, we now have the overly-publicized Bernie Madoff conviction in a multi-billion dollar stock fraud operation, called a “ponzi scheme.”  Suffice to say that stock fraud was pervasive in ancient times, and is probably even more pervasive now. 

2008 was clearly a very difficult year for many people financially. Across the country, people lost their jobs, their homes, their savings and many other material things. Based on news reports, as well as high profile cases like the Madoff scandal, it seemed that in the midst of the burgeoning recession that securities fraud was rampant.  There is truth to Warren Buffet’s statement, “When the tide goes out, you see who’s been swimming naked.” 

Interestingly, or perhaps tragically, the outgoing political administration in our country prosecuted slightly less than 150 total cases of securities fraud, down from over 500 in 2002. Many, including the New York Times, have speculated that the Bush Administration was too lax in policing stock brokers and investment firms, and some have wondered how much that lack of oversight has contributed to our current economic position. Operating under less than ideal accountability, some unscrupulous brokers and firms have taken advantage of people. Is it possible that you have been taken advantage of? 

If you’re reading this article, then maybe you’ve had an investment that has gone sour, or has not performed as you expected, or perhaps as you had been led to believe. Not all investments will turn out as well as we would hope, but there is a difference in losing money in an honest investment, and being defrauded. What exactly is securities fraud? Put simply, it is theft. When investors are encouraged or enticed to invest based on fraudulent or untrue statements, we have an instance of securities fraud, and securities fraud is illegal. Not only is it illegal, but your losses may be recoverable! 

Please understand, to know for sure if you have a case against a broker or investment firm, it is imperative that you talk with a qualified and experienced attorney. That said, here are 5 signs that you might have a case worth pursuing. 

1.  If you were enticed or encouraged to invest based on statements that were exaggerated, or simply false, then it is very possible that you have a case. It is illegal and actionable for a stock broker or other financial representative to lie to a client about a potential investment. 
 

2. If a very important fact about a potential investment was known by your stock broker or investment representative, but was withheld from you, it is possible that you have been defrauded. The Securities Act of 1933 and most states’ laws provide civil relief for an investor, “In the case of a registration statement (or sales pitch) that contains an untrue statement of material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading.” In other words, it is illegal for a stock broker to omit certain types of pertinent information to you about a potential investment. 
 

3. If your stock broker or investment representative invested your money in something that you did not authorize, then it is possible that you have a claim. Put another way, if you were told that your money would be invested in company’s X, Y, and Z, and you later found out that your money was in fact invested in company’s Q, R, S, then you might be the victim of an unauthorized purchase, and again, you might have a claim. 

4. While not every loss is indicative of fraud, a dramatic drop in the value of your investment(s), especially one that occurred during a short time frame, could be a sign that something fishy has happened. 
 

5. If a false rumor or news report caused your investment to plummet in a company, you might be the victim of stock fraud. Swindlers often use rumors to unfairly manipulate stock prices. 

6. In hindsight, if the financial advisor’s representations seemed “too good to be true,” they probably were.

Other signs to look for include: 

• Activity (commissions or transactions) on your annual statement that you do not recognize. 
•  High fluctuation in value in a supposedly conservative investment. 
• A high pressure sales pitch from your broker(s). 
• Earnings restatement coming from one of the primary companies that you are invested in. 
• When questioned about choices, your broker gives confusing or less than clear answers. 
• Strange statements and inconsistent facts in a company’s annual report. 
• The merger of two companies at a price that is unfair to the shareholders of one of the companies.
• Telling you about his/her religious values.
• Selling you on the basis that he/she or their family member has also bought the same securities.
• A broker’s refusal to do as you have instructed.
• Trading securities suspiciously often.

If any of the above signs have happened with your investments, and your losses have been significant, then you need to contact myself, or another qualified securities attorney for a free consultation.

One other encouragement: In securities law, time is of the essence. If you believe you have been defrauded, it is imperative that you contact an attorney as soon as possible for a consultation. If you wait too long, it might be that your losses will not be recoverable. CLICK HERE to Contact Charles M. Thompson.