As an investor, risks are things you have to take into account. Before every investment decision, you need to assess potential risks and recognize ways to mitigate them. While its true that some securities and assets may have more associated risks than others, there is one they all share: the risk of fraud.
However, while you may be able to account for fraud risks, sometimes they can prove tough to disarm and avoid. Even the shrewdest of investors have been victimized by investment scams. The fact is, fraud can be tricky. Scammers have a lot of tools in their arsenal to dupe investors and, unfortunately, they can be quite cunning.
That’s why investment losses happen.
In a perfect world, we’d be able to instantly recognize and thwart fraud attempts before they made us victims. Unfortunately, we don’t live in a perfect world. Sometimes, we just can’t see a scam before it’s too late.
And it’s not that regulation and enforcement officials aren’t doing their job. The state of securities and other investment fraud just evolves so rapidly, it can prove difficult even for fraud watchdogs to spot scams in time.
Investment losses due to fraud happen. If you have never been the victim of fraud, be thankful – it can be a distressing and difficult process – but don’t think it can never happen to you. Fraud can happen, especially when you least expect it.
If you have experienced investment losses because of securities fraud or some other investment scam, know that you are not alone. Because fraud is such a persistent problem for investors, regulators have put measures in place to help investors who’ve been victims of scams. There are several resources out there that may help you recover investment losses.
Recovering Investment Losses
It’s important to remember that, while these safety nets are in place, they aren’t always 100% effective. Nor do they necessarily always ensure that you even will be covered in the event of a loss. However, understanding these processes and how each one works is worthwhile information to have.
Here are five processes available to investors who’ve experienced loss due to securities fraud. Depending on your circumstances, you may be eligible for some form of investment-loss recovery through one of these offerings.
Fair Funds and Disgorgement Funds
Disgorgement funds and fair funds are both financial retributions paid out to loss victims from the perpetrator(s) themselves.
- Disgorgement Funds. Following a successful enforcement action, the SEC may order the guilty party to give-up the fraudulent funds to be redistributed to harmed investors.
- Fair Funds. Additionally, the SEC may order a monetary penalty to be paid on top of disgorgement funds.
In some federal suits, the SEC may request the appointment of a receiver. A receiver is a disinterested court officer appointed in securities law violation cases. You can think of a receiver as a sort of an asset-recovery unit with a built-in escrow function. Their job is to go out and recover any monies or assets held by the defendant in relation to alleged fraudulent activity. The receiver places a protective hold any and all assets until the suit is resolved.
If the defendant is found guilty of a securities law violation, the court may order those recovered funds/assets to be redistributed to investors.
Brokerage Account Protection
One of the most widely-protected investor classes are those that receive financial services through broker-dealers. More than likely, if you are visiting this site, you are a customer of investment services offered through a broker-dealer. If this is you, you’ll want to be paying close attention to these next loss-recovery processes.
If you receive service offering through a registered broker-dealer, you and your assets are reasonably ensured under extensive protective rules. Under current Customer Protection Rules, your broker-dealer must keep your assets and securities separate from their own. That way, in the event that broker-dealer goes out of business, your investments don’t go with them.
Additionally, you may be protected under something called the Securities Investor Protection Corporation (SIPC). If you receive brokerage services from a firm that is a member of the SIPC, your securities and assets can be insured and protected up to a certain amount.
If you have invested with a company that has gone bankrupt as a result of securities law violations, you could be entitled to recoup some of your losses.
You can read this article to find out more info on what happens when a company you have invested in files for corporate bankruptcy.
Private Class Action
You’ve probably heard of private class actions when there is a big financial scandal. Typically, you’ll see a private class action filed the same time or shortly after a federal case brought against the defendant(s) by either the SEC or other regulatory enforcement arm. Class action suits are private claims, outside of SEC enforcement and may be brought on by a private party representing a large group.
If a private class action has been filed in relation to one of your investments, you may be entitled to recovery proceedings. You can follow this link to a searchable database of all securities class action suits that are currently active.
Suing Your Stock Broker
As an investor, you have the right and responsibility to make sure your broker has your best interests at heart. Your broker plays an important role in managing your investments but at the end of the day, they work for you. If you take a hands-off approach to your investment, you are increasing the potential of getting burned by your broker – either maliciously or inadvertently. However, if you practice due-diligence as an investor you can make sure your broker is maintaining ethical standards.
In the event that you suffer a loss at the hands of your broker, you are entitled to recourse. A stock market attorney can help you navigate the claims process and guide you through the complexities of investment-loss recovery.