Securities Law

Louisiana Securities Law Attorney

Understanding Investment And Securities Fraud

Securities fraud, also known as investment fraud, refers to deceptive practices that may involve stocks, bonds, notes, and other commodities. Fraud often occurs as a result of a broker, money manager, or financial advisor engaging in deceptive practices to persuade an investor to make a risky or unsophisticated investment decision. In many cases, these unethical and illegal behaviors can result in huge financial losses and hardships.

Most Common Types Of Investment Fraud:

  • Churning: To generate more commissions, as opposed to increasing a client’s assets, a broker may engage in excessive trading that does not act in the best interest of their client. Churning is a violation of the U.S. Securities and Exchange Commission (SEC) rules and securities law. Churning does not always result in financial losses. In some cases, the harm being caused can be masked by profit in the account, though that profit is greatly reduced by the churning taking place.
  • Misrepresentation: This form of fraud can take on many forms that are often a result of an advisor misstating the risk of an investment. Deliberate misstatements, a lack of details, or the omission of information can be cause for a claim.

  • Unsuitability: It is the legal duty of a financial advisor to properly assess their client to learn about their financial position and make suitable recommendations. The failure to properly question an investor to learn more about their financial goals and position is a violation of FINRA’s (Financial Industry Regulatory Authority) suitability rules. Likewise, recommending investments that are too risky or otherwise inappropriate for an investor is a violation.

  • Unauthorized Trading: A financial advisor must not execute a transaction without the permission of their client. Failure to receive proper approval is a violation of industry rules, and may also violate federal laws.

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