Exceptional and accessible legal representation across Kentucky and Nationwide

Exceptional and accessible legal representation across Kentucky and Nationwide

EXCEPTIONAL AND ACCESSIBLE LEGAL REPRESENTATION ACROSS KENTUCKY AND NATIONWIDE

Pandemic bringing investment scammers out of the woodwork

On Behalf of | Jan 11, 2021 | Regulatory Work |

The U.S. Securities and Exchange Commission (SEC) is publicly warning investors to be wary during the current COVID-19 emergency of an increase in fraudulent schemes to trick them out of their money, including through investment scams. In times of economic uncertainty, people tend to be more worried about financial matters and more easily distracted and vulnerable to scammers.

SEC investor alert

On Dec. 14, the Office of Investor Education and Advocacy within the SEC released an Investor Alert to protect investors from a surge in investment fraud, specifically:

  • Ponzi schemes: A financial house of cards, in a Ponzi scheme client-invested money is used to pay previous investors and the sellers, who are usually not registered or licensed with state or federal regulators, instead of actually being invested for financial returns for clients. Sellers promise high returns and little risk, but Ponzi schemes eventually break down, leaving investors high and dry.
  • Community-based affinity fraud: Fraudsters infiltrate close-knit groups in which members trust one another such as seniors or those based on common religion, nationality, military status, sexual orientation, small business ownership, ethnicity or disability, using the atmosphere of trust to perpetrate investment fraud.
  • COVID-19-related stock promotions: The SEC has suspended stock trading of “dozens” of public companies that have promoted products or services they claim will help fight the pandemic. Making misleading or exaggerated claims about COVID-19 may cause investors to buy shares and drive the price up, only to have it crash when the fraudsters dump their stock when the price is high.

Legal remedies for victims of investment fraud

Often, the victim of investment fraud by an investment advisor, broker-dealer, investment firm or other wrongdoers (who may be pretending to be one of these securities professionals) has ways to pursue justice and economic recovery. For example, the victim could potentially file a state or federal lawsuit or pursue mediation or arbitration before the Financial Industry Regulatory Authority (FINRA) or another private arbitration organization. The claim may settle or proceed to judgment.