Individuals with money to invest sometimes find the wrong place, person, or entity in which to seek a return. Oftentimes, consumers can be duped by a potentially good opportunity, but which is not based on any true profitable future going forward. Provided the consumer has information on the individual that has defrauded him or she into investing into an unsuccessful venture, the consumer can proceed against that person in arbitration and/or Court to prove deception, fraud or breach of contract.
Ponzi schemes are an example of such investment fraud where a consumer is enticed into investing with the entity under a promise of higher than average returns than other, even speculative, investments. The investor is lured into a false sense of security by receiving all or part of the promised return, never knowing that the underlying capital has been squandered. However, investment fraud comes in many different flavors and by many different actors.
Real estate has been a popular context for investment fraudsters, and even beyond the bursting of the housing bubble and the crash of the U.S. housing market from 2008 onward. Real estate remains a popular place to park one's investment money, and can be a good and stable source of income for an investor. However, if left up to managers, brokers or others who have not done proper due diligence, or perhaps intentionally not disclosed information to their clients, a consumer investor can suffer the same devastating fate of any victimized investor: significant loss of principal, upon which consumers' retirement and/or life savings may be based.
Investors often retain financial advisors to manage their investments because they lack the expertise to conduct them on their own. Consumers place their trust and money in a broker who has a duty to serve their interests. However, this can result in disastrous consequences if a financial adviser engages in wrongdoing or otherwise betrays the client’s confidence. Misconduct by a broker or other financial advisor can be pursued to recovery from a responsible party.
The securities industry is well-regulated mainly by federal regulatory and enforcement agencies. The Securities and Exchange Commission (SEC), has set forth guidelines for brokers in conducting investment transactions. These professionals owe their clients a duty of fair dealing, they must disclose certain information, charge prevailing market rates, candidly discuss conflicts of interest, and follow instructions promptly. Furthermore, they must evaluate potential investments according to whether they may be suitable for a client’s particular needs. The fiduciary duty of a broker requires acting in the best interests of the individuals whom they serve. He or she cannot carry out a transaction solely for the purpose of making a commission, or even take that factor into account when advising an investor.
Claims against investment professionals may be brought under either state or federal laws, and they often involve fraud, negligence, or both. To establish a claim for fraud, an individual must show that his or her broker made a knowingly false statement with the intention of inducing reliance. It is also necessary to show that the investor did rely on the statement and suffered losses as a result.