Investment Fraud Terms

Don’t be intimidated by confusing investment terms.

Understanding how your money is invested may help prove your potential securities fraud case.

If you are concerned that you or a family member may be a victim of securities fraud or stockbroker fraud, contact Sokolove Law for a FREE, no-obligation legal consultation. We don’t charge any legal fees unless you are successful in recovering some or all of what you may have lost.

Call Sokolove Law today for a FREE consultation on your potential securities fraud case.

  • Annuities – Investors pay an insurance company a lump sum of money to be paid back in the future under specified conditions. Depending on the contract, this could be in the form of monthly payments or a death benefit. Fixed Annuities offer investors payments at a fixed rate over the time period agreed upon between the investor and the insurance company. With Variable Annuities, the investor’s money is invested in a portfolio. Investor payments are calculated according to the performance of the portfolio.1
  • Arbitration – A process whereby an impartial third party individual (not involved in the disagreement) mediates conflicts between two or more people. Each party submits evidence to the mediators/arbitrators and agrees to abide by the resolution. Decisions made by the mediators/arbitrators are final and may only be revisited under very specific circumstances.
  • Bonds – Investors lend money to a public or private entity (governments, corporations, etc.) through the sale of a security. The entity agrees to pay the investor back at a specified interest rate during the bond’s life and repay the value of the bond when it matures. Bonds typically pay interest semiannually providing the investor with a more predictable stream of income, and are therefore considered a more conservative investment.
  • Broker Dealer Registration – Brokers (those who buy & sell securities for clients as their primary business) and dealers (an investment firm or brokerage) are required to register with the Securities and Exchange Commission (SEC) and with a self-regulatory organization such as the Financial Industry Regulatory Authority (FINRA).2
  • Commission – A commission is the money paid to a broker, investment professional, or financial advisor for making a trade or conducting a transaction on an investor’s behalf. The number of shares bought or sold or the monetary value of the transaction usually determines the commission amount.
  • Day Trading – Day traders buy and sell stocks throughout the day with the goal of making a quick profit within minutes as a stock rises or falls. Day trading is an extremely risky investment activity and requires quick action on the part of the trader.
  • Exchange – Traded Funds (ETFs): These funds attempt to mimic the daily growth of a specific market index, like the NASDAQ or the S&P 500. Shares are issued in blocks (vs. individually) and are purchased primarily by institutions. The institutions, in turn, resell shares to individual investors.3
  • ERISA – The Employee Retirement Income Security Act of 1974 sets the minimum rules for pensions and employee benefit plans.
  • Fair Value – The unbiased price (or possible price) of a good or service in an active, free market.
  • FINRA – The Financial Industry Regulatory Authority is a non-governmental, self-regulatory organization for securities firms doing business with the United States public.4
  • Hedge Funds – These funds pool investors’ money and invest those funds according to the strategy of the particular fund. The primary idea is to use speculative investing techniques (such as short selling or derivatives) to generate returns.5 In general, hedge funds are not required to register with the SEC and hedge fund investors are not protected under most of the state and federal laws that apply to registered securities.6
  • Interest – A fee paid back to an investor on borrowed assets, by the owner of those assets.
  • Investment Advisor – These financial professionals offer advice on investing in stocks, bonds, and other securities and often buy or sell those securities on behalf of clients. Investment advisors (also known as brokers, dealers, stockbrokers) are usually required to register with the SEC and a self-regulatory organization, like FINRA. An investment advisor should understand a client’s investment objectives and risk tolerance before making investment recommendations.
  • IRA – An Individual Retirement Account is an account set up by an individual to contribute towards their retirement fund. Taxes are not collected on the earnings of this type of account until funds from the account are withdrawn by the individual, allowing people to potentially save more money.
  • Market Price – The price of a good or service in a changing marketplace. The market price can fluctuate as supply and demand change. When a good is scarce, the price will rise as more people try to find and purchase that good (a popular toy, a sold out concert, etc). If a product is widely available with many competitors, then the market price may decrease.
  • Mortgage-Backed Securities – Banks offer mortgages to homebuyers and commercial property developers and then sell these loans to third parties. These mortgage loans (primarily residential) are pooled together by the third party and securities are issued that represent the value of the loans and interest on those loans. Securities shareholders are usually entitled to a portion of the interest and principal payments being made by homeowners to their banks. 7
  • Mutual Funds – A mutual fund pools money from many investors and then invests the money in stocks, bonds, short-term money-market instruments, and other securities.
  • Penny Stocks – These stocks usually sell for under $5 per share. These companies tend to be small; the SEC classifies penny stocks as high-risk investments. When a firm (broker or dealer) sells these investments, they are required to give investors a statement outlining the risks of purchasing these stocks.8
  • Pension fund – An investment pool set up by a union or employer that combines money from employee retirement contributions into one large fund that is then invested in bonds, stocks, mutual funds, and other securities. The fund then uses these funds to pay pension benefits to retirees.
  • Rating Agency – A firm that evaluates the “credit worthiness” of public or private entities and its obligations (like bonds and stocks). These agencies must be registered with the SEC.
  • Real Estate Investment Trust (REIT) – A fund that invests in both residential and commercial real estate ventures and real estate assets (like mortgages). Three different types exist: Equity REITs, Mortgage REITs, and Hybrid REITs. Equity REITs buy real estate and investors are paid back through the rent collected on those properties. Mortgage REITs offer mortgages to developers or commercial property owners. These REITs may also be invested in mortgage-backed securities. Hybrid REITs combine the strategies of both Equity REITs and Mortgage REITs to generate returns for their investors.9
  • Rebalance – Rebalancing usually includes buying and selling securities to restore your ideal balance of stocks, bonds, cash, etc. after market changes. For example, if the stock market grows substantially, then an investor’s percentage of assets invested in stock also grows. To rebalance the account, the investor would sell some of that stock and move the money into other securities.
  • SEC – The Securities and Exchange Commission regulates the financial industry and markets. It was created after the 1929 stock market crash to protect investors.
  • Securities – These are negotiable instruments with financial value such as stocks, bonds, derivatives, mutual funds, and futures. “Securities” is a general financial term to describe many types of investments.
  • Securities Fraud – Securities fraud occurs when investors are intentionally given incorrect or incomplete information on the risks and returns of purchasing a security to entice them to purchase.10 As a result of that purchase, the investor’s assets may be significantly devalued.
  • Share Price – The price of one share of stock.
  • Stock – A financial instrument that offers part ownership in a corporation and gives the holder a claim on that corporation’s assets and income. Stock prices change with the market (supply & demand) and stocks sometimes pay dividends.
  • Stockbroker – Also known as brokers, these financial professionals buy and sell stocks for others as their primary profession. These individuals are usually required to register with the SEC and a self-regulatory organization, such as FINRA.
  • Tax Deferred – This term is commonly used to describe retirement account contributions. Instead of paying taxes on income put into or earned within the account, taxes are not collected until an investor withdraws funds from the account, i.e. waiting until later to pay the taxes vs. immediately.
  • Total Return – All return on an investment including appreciation, dividends, and interest.
  • Transfer Agent– An agent who works on behalf of a company to keep track of individuals and corporations that own their stocks or bonds. Frequently, transfer agents are independent companies and not part of the organization whose stock or bond records they manage.
  • Yield – Usually stated as a percentage, this is an investment’s rate of return or amount of income returned to shareholders.
  • 401(k) – An investment plan (usually set up by corporations) which enables employees to make tax-deferred contributions towards their retirement. Also known as a defined contribution plan.

Visit our Case Studies page to read about real examples of securities fraud that happened to people like you.

Failing to call a securities fraud attorney could be an expensive mistake.

In some cases, securities fraud and stockbroker fraud victims may be able to recoup some or all of their losses. A securities fraud lawyer helps you determine whether you have a case and advises you on next steps for legal action.

Are You at Risk?

  • Are you aware of your financial advisor or stockbroker’s background?
  • Do you check the registration status of your investments?
  • Is your investment firm licensed and registered with the SEC?

If you are unsure or answered “no” to any of these questions, you may be at risk for securities fraud or stockbroker fraud and should seek answers immediately. Learn More.

Why Work With a Securities Fraud Attorney?

securities fraud attorney should be familiar with changing state and federal laws and can advise you on legal options appropriate to your situation. Sokolove Law, a national law firm, offers a FREE, no obligation legal consultation for those who believe they have been a victim of securities fraud or stockbroker fraud. Call Sokolove Law today to learn more about how we might be able to help you recover your losses.

Why Sokolove Law?

  • For more than 40 years, Sokolove Law has helped people like you get the legal support they need, regardless of race or income.
  • Sokolove Law is a national firm and has helped people in all 50 states.
  • We partner with you in order to better understand your situation and help guide you through the often overwhelming legal process.
  • We offer a FREE, no obligation legal consultation and only collect a legal fee if we are successful in helping to recover some or all of your losses.

Footnotes

  1. AARP, About Annuities
  2. Securities and Exchange Commission, Guide to Broker-Dealer Registration, www.sec.gov/divisions/marketreg/bdguide.htm 
  3. Securities and Exchange Commission, Exchange-Traded Funds, www.sec.gov/answers/etf.htm 
  4. FINRA, Glossary, //www.finra.org/Glossary/index.htm
  5. Wikipedia, Hedge fund, en.wikipedia.org/wiki/Hedge_fund 
  6. Securities and Exchange Commission, Hedging Your Bets: A Heads Up on Hedge Funds and Funds of Hedge Funds, www.sec.gov/answers/hedge.htm 
  7. Securities and Exchange Commission, Mortgage-Backed Securities, www.sec.gov/answers/mortgagesecurities.htm 
  8. Securities and Exchange Commission, Penny Stock Rules, www.sec.gov/answers/penny.htm 
  9. Securities and Exchange Commission, Real Estate Investment Trusts, www.sec.gov/answers/reits.htm 

 

Author:Sokolove Law Team
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: September 25, 2020