Securities Frauds are a way to get finances from investors and can have detrimental effects on one’s portfolio. While they can come in different forms, it generally involves the process of misrepresenting specific information. In this article, we’ll discuss six securities frauds that you should avoid.

Broker Misconduct

A stockbroker has a duty to know their clients and make recommendations that are appropriate for their current position. If they misrepresent or omit facts that cause you losses, they may be liable. One of the most common types of broker misconduct is called churning. This is when they persuade you to make excessive trading so that they can earn more commissions. It’s vital that you keep an eye on your broker to ensure that they are being ethical and making the right choices for your needs.

Ponzi Schemes

Similar to the pyramid scheme, the Ponzi scheme uses new investors to generate returns for early investors. However, when there are no other investors to persuade, the system begins to unravel. To avoid this fraud, keep an eye out for promises of high returns that seem too good to be true. If you’re looking for advice, you may want to check out securities fraud class action lawsuits.

Insider Trading

Insider trading is illegal and is the result of confidential inside information being used as an advantage to buy and sell stocks. It could be an organization purchasing a security, or friend and family of the individual who has acquired the knowledge. To avoid this type of securities fraud, make sure you report information that isn’t public yet and regularly check your sources.

Pump and Dump Scheme

The pump and dump scheme is another common securities fraud and can be done by one or multiple investors. It attempts to raise the price of a particular stock through recommendations; however, these are generally false. Once individuals fall for the scheme, these investors then sell, causing the price to drop. This then results in significant losses for the new investors.

Unauthorized Trading

Unless you have given them permission, your broker should not buy or sell any of your investments without calling you to confirm first. If they have, this is a form of unauthorized trading and can result in many financial losses. Many times, when they have been discovered, they will try and convince the client to hold on to them with promises of high return. However, you should report this misconduct immediately.

Prime Banks

If you receive an offer to a secretive investment program for top investors, then chances are it’s a prime bank fraud. These scammers will offer you high returns without any risk, but in fact, they don’t exist. To avoid this securities fraud, make sure you do your research before signing up to any programs and communicate with your financial advisor. It could save you thousands of dollars.

By reading the above, you will be able to keep an eye out for common securities frauds, so that you can continue investing safely. Just remember to reach out for professional advice if you do think you have become a victim. This way, you can take control back of your finances.