Check for Signs of Securities Fraud During Tax Season

Tax season is upon us and you may have already gotten your W-2s, 1099s, and other tax forms together for your trip to the accountant. If you also have investments, you should have received forms from your stockbroker, like a 1099-DIV and a 1099-B. Investing can be a great way to build your net worth, but as you look into your finances this tax season, you should also make it a point to understand the types of securities fraud that occur and the potential signs of fraud to ensure it’s not happening to you.

Types of Securities Fraud

When you make the decision to begin investing, it is essential to stay informed and remain aware of your investment activity in an effort to avoid fraud before it impacts your financial health.

Securities fraud occurs when a financial professional encourages a client to invest in risky ventures that devalue their assets without ample warning, or when they act without their client’s knowledge. Some specific types of securities fraud include:

  • Overconcentration: When your advisor ignores your wishes and invests most or all of your money in a few high-risk stocks or one type of asset.
  • Misrepresentation or Omission: When your advisor recommends you make a risky investment, without disclosing the major risks involved. This may also occur if your advisor fails to tell you that they were previously disciplined by a financial licensing board.
  • Churning: When your advisor ignores your investment goals and makes trades within your account just so they can increase their commission.

There are a few other types of securities fraud including “Unsuitable Recommendation,” “Failure to Execute,” and “Selling Away.”

Signs You May Be the Victim of Securities Fraud

If you’re new to investing, you may not know of the potential red flags. However, a few warning signs are relatively easy to recognize:

  • Your broker is guaranteeing returns. If your broker is trying to convince you that you are definitely going to see a return on a specific investment or investments, it’s likely worth some research or a second opinion. There’s risk involved in any investment, and while some risks are certainly less than others, returns are never
  • The brokerage firm you’re working with has been investigated for investment fraud. You can do a quick online search to find out if your brokerage firm has ever been investigated by the Securities and Exchange Commission or your state’s Attorney General.
  • Your broker likes to pressure you. Don’t let your broker get too intense and try to pressure you into certain investments you’re not sure about. It’s your money, it’s your future, and they should not be pressuring you into anything you don’t want to do.

If you suspect your stockbroker has not been acting in your best interests this past tax year, call Sokolove Law — we can help you figure out if you’ve been the victim of fraud and help you determine if you have a case to reclaim the money you may have lost.

Sokolove Law Team

Contributing Authors

The Sokolove Law Content Team is made up of writers, editors, and journalists. We work with case managers and attorneys to keep site information up to date and accurate. Our site has a wealth of resources available for victims of wrongdoing and their families.

Last modified: July 29, 2020