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Investment lawyers help to protect investor interest against investment frauds

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Investments carry varied amounts of risks, and it will be hard to term any investment as entirely safe. Indeed, some investments are more reliable than many others. Investing in bonds and fixed deposits of banks and financial institutions is a safer option than investing in the stock market. But still, you cannot vouch it to be 100% safe. Banks might get involved in some financial scam, and investors might lose their money. But the higher risk comes from making wrong investment decisions under the influence of some sweet-talking financial advisor or stockbroker working in an individual capacity or representing some brokerage firm, investment bank or financial company and lose money in the process either partially or totally.

The above is an example of stockbroker misconduct or investment fraud or security fraud, which is a serious white-collar crime. According to the Federal Bureau of Investigation (FBI), securities fraud consists of other financial activities conducted in the form of pyramid schemes, Ponzi schemes, broker embezzlement, foreign currency fraud, late day trading, and hedge fund related fraud. In all these cases, investors suffer because they fall prey to misrepresented facts fabricated to manipulate financial markets in some ways that cause enormous losses to investors. Providing false information, offering bad advice, acting on inside information, or offering to act on it and withholding vital information all amount to criminal activity.

Types of securities fraud

Tricking investors, by any means, amount to securities fraud, and among numerous methods of duping investors, the most common is to misguide them by providing false information. High-yield investment from securities, commodities, real estate, etc. with guarantees of a high rate of return with the assurance of the least risk or no risk at all is a typical example of securities fraud. Another technique is to lure investors with advance fee schemes and convincing them to advance a small sum of money in regular installments in the guise of processing fees and taxes for the fund with the promise of incredibly high returns that would never be coming.

Ponzi and pyramid schemes make use of fresh funds furnished by new investors to pay earlier investors who have enrolled for the scheme with the hope of high returns. As more people keep joining the scheme, the process of infusing money into the system and passing it on to some of the prior investors keep continuing.

Legal protection for investors

If you become a victim of securities or investment fraud, you can seek justice by engaging an investment fraud attorney. They will provide necessary legal assistance for restoring your financial security. Whether you lose money in the stock market or from some other investment due to wrong information furnished by the broker, brokerage firm, or financial advisor, the securities law provides ample protection to investors. Securities laws are complex and involve various legal issues. The attorney is well conversed with the procedures and has the knowledge and experience to work out ways to protect the interest of investors.

Victims must prove fraud

Victims of securities fraud must amply demonstrate that the broker or financial advisor or someone else belonging to the industry had purposely made a misrepresentation of facts or omitted some information that was part of the material the fact that the victims relied upon for making investment decisions. Also, they must also establish that by relying on the information supplied to them, they have suffered damages and that the fraudster either knew or should have known that the information they were dealing in was not true.

In some cases, victims who make fraud claims must show some action related to the misrepresented information that demonstrates their reliance on the information. Lawyers make use of evidence, direct or indirect, to show that the investor had relied upon the information and acted on it. A claim made in the prospectus about some lucrative contract that does not exist is an example of direct evidence. When the fraud victim can show that they based their investment decision on the statement mentioned in the prospectus, it constitutes direct evidence about their reliance or action.

Using indirect evidence

Depending on the nature of fraud and the circumstances, the lawyer can advise the affected investor to use indirect evidence based on the fraud-on-the-market theory. The theory is relevant when the case involves a misrepresentation that artificially inflates the stock price. In this case, the misrepresentation affected the stock price, and the investor relied on the information to buy the stocks based on the projected cost. The action points to the fact that the investor indirectly relied on the information that misled the entire market.

The defendant would make all efforts to undo the claim of the investor. They will try to show that the supplied information did not affect the stock prices, or the information was not at all important. The defendant may even try to establish that the investor was aware of the possibility of the statement being incorrect or false and would have anyway bought the stocks despite knowing that the information was false.

Instances when there is no need to prove reliance

Misrepresentation does not only mean providing wrong or false information knowingly. But not providing a piece of important information or omitting it is also liable to mislead investors and confuse them. For example, an issuer may be facing a court case about some patent, but there is no mention of it in the prospectus. The omission of information can affect investors adversely, but it will be difficult to prove that they relied on the missing piece of information and when ahead to invest in the fund.  

In such cases, courts would consider if the information that was omitted constitutes material facts that have enough chances to influence the investment decisions of investors. It will check if it is enough proof to establish the wrongdoing, and there is no need to provide any positive proof of reliance.

Security laws empower investors to protect their rights against frauds. If you have lost money due to the wrong guidance of financial agents, you can always seek justice against misconduct, whether by an individual or a company.

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