Amazingly enough, stock or securities fraud can happen to even the individual investor, not only to multi-million dollar investors. The most at risk are those investors who are relatively uneducated or inexperienced in investing, and are not keenly aware of the pitfalls of the securities market. Statistics show that retirees, medical doctors, single parents and those looking for a ‘quick buck’ or profit are most likely to be victims of securities fraud.

Securities fraud is defined as the intentional disregard of the client’s needs for one’s own gain. These fraudulent actions can include lying, misrepresentation, untrue statements or simple outright fraud. Securities fraud can be committed by a range of individuals and can include a variety of investment vehicles. However, one theme remains the same with all securities fraud cases: they all promise quick profits for little risk. The old rule of thumb is important to keep in mind: if it sounds too good to be true, it is!

Some of the standard securities fraud categories involving brokers are: intentionally misleading the client about a stock or risks associated with an investment; recommending stocks or investments that are unsuitable for a client’s risk profile, mostly leading to losses that the client cannot bear; failure to diversify a client’s portfolio in line with the risk tolerance or preference voiced by the client; and ‘churning’ - a very popular technique for brokers to earn additional commissions by making lots of unnecessary and unwarranted sales/buys on a client’s account and earning commissions on each transaction.

The heartbreaking part of securities fraud is that in a high percentage of cases, investors are unable to recoup their losses, since the con artists are long gone before investors realize that they have been conned out of their life savings or children’s college fund. However, there can be successful litigation, if perpetrators can be found or if the fraud involves established brokerage houses.