Have You Been the Victim of a Ponzi Scheme?

Have You Been the Victim of a Ponzi Scheme?

A Ponzi scheme is a fraudulent investment program where the perpetrator uses newer investors’ money to pay alleged “investment returns” to earlier investors. A typical Ponzi scheme lures investors with promises of above-market rates of return. The use of newer investors’ money to make alleged investment return payments to earlier investors gives the fraudulent appearance of a properly functioning and successfully performing investment strategy. A Ponzi scheme can continue as long as the fraudster is able to get new investors to invest into the scheme.

What to Look for in a Ponzi Scheme

Many Ponzi schemes have common characteristics. Some of the red flags of a potential Ponzi scheme include the following:

  • Above-market returns with supposedly little or no risk. Every investment carries some degree of risk, and the risk/reward paradigm dictates that higher yielding investments typically involve more risk. Be highly suspicious of any “guaranteed” investment opportunity.
  • Significant rate of return. Even where the investment is represented to be risky, the promised investment returns often are much greater than other risky investments.
  • Overly consistent returns. Investments tend to go up and down over time. Be skeptical about an investment that regularly generates positive returns regardless of overall market conditions. (Many Bernie Madoff investors failed to recognize or ignored this red flag.)
  • Unregistered investments. Ponzi schemes typically involve investments that are not registered with the SEC or with state regulators. While some unregistered investment are legitimate, registration is important because it provides investors with access to information about the company’s management, products, services, and finances.
  • Unlicensed sellers. Federal and state securities laws require investment professionals and firms to be licensed or registered. Many Ponzi schemes involve unlicensed individuals or unregistered firms.
  • Secretive, complex strategies. Avoid investments if you don’t understand them or if the seller refuses to provide full, intelligible disclosures about the investment strategy.
  • Sloppy or inaccurate paperwork. Account statement errors may be a sign that funds are not being invested as promised.
  • Difficulty receiving payments. Be suspicious if you don’t receive a payment or have difficulty cashing out. Ponzi scheme promoters sometimes try to prevent participants from cashing out by offering even higher returns for staying in the investment.
  • Representations of exclusivity. that not all investors have access to the investment. (Bernie Madoff used this technique to great success.)

 Call a Los Angeles Fraud Attorney Today

Many very savvy investors have been taken advantage of by unscrupulous Ponzi scheme promoters. Two of the most notorious and largest Ponzi schemes were Bernie Madoff and Allen Stanford, each of which involved the theft of billions of dollars from unsuspecting investors. If you made an investment only to find out that it was a Ponzi scheme, or if you believe you have invested in one, you should contact an experienced Los Angeles fraud attorney today for a free consultation to discuss your legal rights.

 

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Misrepresenting the Risk of Collateralized Debt Obligations

Misrepresenting the Risk of Collateralized Debt Obligations

A collateralized debt obligation (CDO) is a form of structured asset-backed security that may include mortgage-backed securities. CDOs are funded by investors who are then repaid in a prescribed order of priority according to the seniority of the investment, which is also known as a “tranche.”

The CDO collects money when payments are made on the loans that are held within the CDO, and then the CDO investors are paid based on the priority of the CDO tranche that they own. When some loans within the CDO default and the money collected by the CDO is insufficient to make payments to all CDO investors, those investors with the least seniority are paid back last, and sometimes not at all.

When Should You Invest in a CDO?

Generally speaking, investing in a CDO is safest if your seniority places you at the top of the payment priority, and becomes more risky depending on your prescribed tranche. You should be aware of the risks of such an investment, especially if your broker is selling you a junior tranche that generally is more risky than the more senior tranches.


Call a Los Angeles Securities Lawyer Today

Investors often rely on their broker or brokerage firm to provide sound advice when it comes to investing in CDOs. If your broker misrepresented or misled you regarding a collateralized debt obligation, and failed to properly advise you of the inherent risks of a CDO, you should contact an experienced Los Angeles securities lawyer for a free consultation to discuss your legal rights.

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Dealing With Unregistered Brokers or Brokerage Firms

Dealing With Unregistered Stockbrokers or Brokerage Firms

Most securities broker-dealers are required to register with the SEC and state securities regulators, as well as the Financial Industry Regulatory Authority. According to the SEC, a broker is defined broadly as any person engaged in the business of effecting transactions in securities for the accounts of others, including investment advisors, finders, those who operate platforms to trade securities, financing and even those who provide support services to registered broker-dealers, among many others. Similarly most securities must be registered with regulatory authorities in order to be sold to investors.

Potential Registration Warning Signs

  • Failed investments
  • Sales of unregistered securities
  • Negligence or broker misconduct
  • Stock fraud

Both state and federal securities laws exist to protect consumers from unlicensed activity. Certain situations can provide grounds for a securities registration class action, through which investors can seek to rescind any transactions involving unregistered securities or the unregistered brokers and firms selling the securities. FINRA arbitration claims also can be filed regarding the same wrongdoing.

Call a Los Angeles Stockbroker Fraud Attorney Today

If you believe you have dealt with an un licensed stock broker, brokerage firm, or security, you may have certain legal rights that require your immediate attention. You should contact an experienced Los Angeles stockbroker fraud attorney as soon as possible to discuss your rights.

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What is Investment Fraud & Stockbroker Misconduct?

What is Investment Fraud & Stockbroker Misconduct?

When you are planning for your family’s long-term future, a prudent financial strategy is critical. It is important to know that you can rely on the advice of your stockbroker when deciding how and where to invest your savings in the stock market. Unfortunately, and in an effort to make a sale, a stockbroker might induce you to invest on the basis of false or incomplete information – this is investment fraud, and is also known as stock fraud. This sort of misinformation or incomplete information is just one of several ways that your stockbroker may have committed a violation of securities laws.

Types of stockbroker fraud can include:

  1. Unsuitable or untenable investments
  2. Misrepresentation of Facts
  3. Failure to Diversity or Overconcentration
  4. Churning
  5. Withdrawal of funds without proper authorization

When you speak with a stockbroker, he or she must disclose both the positives and negatives of any particular investment. Investment fraud can result from stockbroker misconduct in many other ways, including as a result of theft or embezzlement, misstatements in public reports, insider trading and much more.

As a result, investors suffer significant losses because they were not told the truth or the risk of an investment. A stockbroker must always explain the nature of an investment – even if you are given only truthful information about a particular investment, a failure or omission to tell an investor about the risks of an investment also constitutes fraud. A stockbroker has a duty to tell you both the good and the bad about any type of investment.

It is important to realize that even if your stocks lose money, it isn’t necessarily investment fraud or stockbroker misconduct. The stock market does rise and fall, and if you are concerned over potential losses you should consult your stockbroker and discuss your investment portfolio and strategy and consider an alternate course of action.

Contact a Los Angeles Securities Fraud Attorney Today

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