3 Ways to Protect Yourself Against Fraud and Misrepresentation from Stock Brokers
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As reported in InvestmentNews, three Raymond James entities have agreed to pay over $15 million to resolve an investigation by the SEC. The settlement and SEC order focused on Raymond James’s actions in improperly charging certain clients advisory fees when the...read more
When investors entrust their finances with brokers, they reasonably expect that brokers will be honest and transparent about the risks and benefits of the transactions they make on behalf of investors. Unfortunately, brokers commit fraud everyday by misrepresenting or omitting material facts to their investor clients. Broker fraud can catch you by surprise, and many investors who are victims of fraud and misrepresentation will tell you that they never saw it coming. Nevertheless, there are red flags to look out for and additional precautions that investors can take to prevent this from happening. FINRA attorney Dietrich Epperson discusses 3 ways investors can protect themselves against broker fraud and misrepresentation.
Research Your Broker and Brokerage Firm
It goes without saying that ratings and comments found in online reviews and message boards should be taken with a grain of salt. However, it is not always a bad idea to do some online research either. Finding out whether your broker is licensed to sell securities in the state you are living in and researching the legal or disciplinary history of your broker can help you avoid doing business with an individual who has a history of fraud. The Financial Industry Regulatory Authority (FINRA) has a Broker Check network online where investors can research the background and experience of individual brokers and financial firms. Broker Check provides a brief description of the following:
- Employment history
- Arbitrations and complaints
- Licensing information and regulatory actions
Broker Check also provides information pertaining to whether a broker or firm is registered by law to offer investment advice, sell securities, or both. Even if a friend or colleague referred your broker to you, it is still wise to perform your own research and due diligence.
Research Your Potential Investments
Even though you may have full faith and confidence that your broker is disclosing all pertinent information about an investment, it is important to perform your own research. The majority of companies, with few exceptions, are required to register their securities with the U.S. Securities and Exchange Commission (SEC) before they are permitted to sell shares to the public. The SEC operates an online disclosure database called EDGAR. EDGAR stands for Electronic Data Gathering Analysis and Retrieval, and it provides free access of corporate information to the public. Some of the information that is stored in EDGAR’s system includes:
- Quarterly reports (Form 10-Q)
- Annual reports (Form 10-K)
- Income statements
- Balance sheets
- Statement of shareholders’ equity
- Cash flow statements
- Registration statements
- Form 3
- Form 4
- Form 5
- Form 8-K
Remain Skeptical and Ask Questions
The saying goes: if something seems too good to be true, it usually is. The stock market experiences fluctuations on a fairly regular basis. When an investment has a steady rate of return or it goes up every month regardless of overall market conditions, this is reasonable grounds for suspicion. When returns are overly consistent, this could also be a major red flag of fraudulent activity. Similarly, if a broker tries to sell you on an investment with “guaranteed returns,” don’t buy it (literally). Every investment carries with it some sort of risk, and investments with high returns usually involve high risks that you might not be willing to undertake.
Request that when your broker presents you with a potential investment, he or she also present corresponding paperwork that supports the information your broker has supplied you with. If you are not provided with offering documents, account statements, prospectus, and/or other relevant paperwork, you should be wary that this could be a scam. Never accept an investment opportunity that you are insure or uninformed about. Ask as many questions as you can, and make sure that the investment meets your personal goals and objectives. Before presenting you with an investment opportunity, your broker should have thorough knowledge of the information contained in your investment profile. Investors’ investment profiles contain the following information:
- Age of investor
- Risk tolerance
- Investment experience
- Tax statute
- Total investments
- Need for ability to liquidate assets
- Financial situation
- Any other relevant information disclosed by investor
There is always a chance that a broker could misunderstand or overlook a piece of material information in your investment profile. Thus, it is wise to remind your broker of the level of risk you are comfortable with as well as your objectives prior to committing to an investment opportunity.
Delaware County Securities Fraud and Misrepresentation Lawyer
If you have been a victim of securities fraud or misrepresentation, contact a Pennsylvania securities fraud attorney right away. Dietrich P. Epperson, Attorney at Law, takes pride in fighting tirelessly for his clients so that they can emotionally and financially recover from the fraudulent financial practices they were exposed to. He provides legal services to the Delaware County, greater Philadelphia areas and also, on a federal level, has appeared before FINRA. To schedule a free and confidential consultation with a Pennsylvania investment fraud and misrepresentation lawyer you can trust, call Dietrich P. Epperson at (877) 445-9261.