Fraud and Dispute Resolution in the World of Investing

There are many perils in the world of investing, some preventable and others not. All investors must be conscious of the potential for fraud to reduce the risk of falling victim to scams and shady investments. As trite as it may sound, the most basic thing to remember is that if an investment opportunity sounds too good to be true, it probably is.

Types of Fraud

Here is a partial list of some of the more prevalent fraudulent schemes to be aware of:

Protecting Against Fraud

The most important part of protecting against fraud is simply to thoroughly investigate any investment before committing money to it. Learn about the investment, check with regulatory commissions to verify its legitimacy and follow-up on the background of the individual or organization that you are buying it from. There is no excuse for not properly researching every investment. Although it can be time-consuming, your efforts will be repaid in the form of lower risk and higher returns.

In almost all cases, unsolicited investment opportunities are not worth your time. Therefore, most phone calls offering you any sort of investment opportunity can be completely ignored. In any case, it is essential to receive written information about any potential investment before making any decisions. Without it, no evidence of the agreed-upon transaction will exist. Also, never give out financial information over the phone, including credit card numbers, unless there is no doubt as to who is receiving the information and what they plan to use it for. Legitimate transactions can take place over the phone, but the burden lies with you to gather enough information to know that you are not in danger of being scammed.

Similarly, investment decisions should not be based entirely on information that is found online. Web pages do not represent sufficient documentation of investment opportunities. All contacts and information should be verified and written information should be acquired before any investments are considered.

Responding to Fraud

Fraud victims often experience significant psychological trauma in addition to their financial losses. Falling victim to a scam can lead to feelings of humiliation and lowered self-esteem. It may be necessary to seek professional counseling to put the incident squarely in the past. As long as the necessary lessons about future protection have been learned, an experience with fraud should not be something that lingers or prevents future investing in legitimate securities. Legally, fraud cases can be quite complex and are not always as satisfying as the victims had hoped. Fraud is often prosecuted as a crime against the state which can push victims to the periphery of the proceedings. Upon conviction, victims will be provided with a Victim Impact Statement to begin the process of restitution. This statement and conversations with an investigator will serve to determine financial impact and the other effects of the crime (emotional, physical, etc.). A judge will determine a settlement figure to be divided among all victims. However, actual payment will depend on many things including the defendant's ability to pay. There are also avenues of civil litigation that may aid restitution, and it may be advisable to contact an attorney to investigate them.

Dispute Resolution

When dealing with investment professionals, there is always the possibility that disagreements over the proper management of funds will arise. Whether intentional or unintentional, problems may need to be sorted out. Possible problems include decisions made by money managers with the authority to make transactions or simply the execution of a stock trade by a broker. Keep in mind, however, that your rights may be limited by agreements that were signed initiating a relationship with the target of your complaint.

The most common methods of dispute resolution are mediation and arbitration. These techniques allow for speedy and fair conclusions without the often exorbitant expenses associated with court proceedings. Mediation involves the use of a facilitator to help two parties reach an agreement. Arbitration involves a more structured presentation of evidence and results in a binding and final decision made by an independent individual called an arbitrator.

Of course, the first step is simply to report the problem to the investment professional and their management. They may be able to put the issue to rest with minimal complications or they may choose to move forward into mediation or arbitration, depending on their policies and terms of the agreement the investor has signed. If a complaint is ignored or not handled as expected, it may be necessary to consult an attorney.

To identify potential problems, investors should keep track of any decisions or transactions made by their investment professionals and compare them against the list of investments and transactions that the professional has the authority to make. Any discrepancies should be reported immediately. Most transactions require the investor's authorization, so investors must know what they are agreeing to and be on the lookout for anything that they did not approve.
By InvestorGuide Staff

Copyrighted 2020. Content published with author's permission.

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