How Do I Know If I Have Been Defrauded? and more..

How Do I...

How Do I Know If I Have Been Defrauded?

It is often difficult for investors to determine whether they have been victims of investment fraud. A trusted professional advisor, such an accountant, may become aware of the possibility upon a review of financial matters. Other times, investors may have sufficient knowledge about investment matters to recognize suspicious activity in their account. Unfortunately, it may be difficult or nearly impossible to tell unless you consult with a professional. Listed below are just a few of the warning signs for investment fraud:

  • Your broker fails to return your calls.
  • You no longer understand the transactions on your statements.
  • You get a flurry of account statements verifying transactions you did not authorize.
  • You find unidentifiable debits or credits on monthly account statements.
  • You are losing money in a "up" market.
  • You experiencing decline in the majority of investments recommended by the broker.
  • Your broker tells you to view market news as entertainment.
  • Your broker fails to disclose important information regarding an investment purchase.
  • Your broker begins trading in high risk and speculative investments.
  • You are paying capital gains taxes, despite the fact that your account value is decreasing.
  • You find transactions on your account statements that you did not previously authorize.

These are only a few of the warning signs. If any of these signs are familiar to you, you may wish to immediately seek the advice of an investment fraud professional.


How Do I Pick a Broker or Investment Adviser and Check Their Background?

ASK QUESTIONS. That's the best advice we can give you about how to choose a broker or adviser and how to check out their background. It doesn't matter if you are a beginner or have been investing for many years, it's never too early or too late to start asking questions.

Don't hesitate to ask questions about how a broker or adviser proposes to invest your money. Don't feel intimidated. Remember, it's your money. A good broker or adviser will welcome your questions, no matter how basic. After all, financial professionals would rather answer your questions before you invest, than confront your anger and confusion later.

Before you make a securities investment, you must decide which firm and sales representative to use. Before making these decisions you should:

  • Think through your financial objectives and prepare a personal financial profile. Talk with potential salespeople at several firms. If possible, meet them face to face at their offices. Ask each sales representative about his or her investment experience, professional background, and education
  • Find out about the disciplinary history of any brokerage firm, broker or adviser. You can ask either your state securities regulator or the National Association of Securities Dealers Regulation, Inc. (NASDR) to provide you with information from the Central Registration Depository, or "CRD", a computerized database of information about brokers, some advisers, and their firms. Your state securities regulator may provide more information from the CRD than the NASDR, especially when it comes to investor complaints, so you may want to check with them first. You can find out how to get in touch with your state securities regulator through the North American Securities Administrators Association, Inc.'s website. You can go to NASDR's website to get CRD information or call the BrokerCheck Hotline toll-free at 800 289-9999. If your adviser is not on the CRD, ask for their Form ADV and disciplinary information
  • Understand how the sales representative is paid; ask for a copy of the firm's commission schedule. Firms generally pay sales staff based on the amount of money invested by a customer and the number of transactions done in a customer's account. More compensation may be paid to a sales representative for selling a firm's own investment products. Ask what "fees" or "charges" you will be required to pay when opening, maintaining, and closing an account
  • Determine whether you need the services of a full service or a discount brokerage firm. A full service firm typically provides execution services, recommendations, investment advice, and research support. A discount broker generally provides execution services and does not make recommendations regarding which securities you should buy or sell. The charges you pay may differ depending upon what services are provided by the firm
  • Ask if the brokerage firm is a member of the Securities Investor Protection Corporation (SIPC). SIPC provides limited customer protection if a brokerage firm goes out of business. SIPC does not insure against losses attributable to a decline in the market value of a client's securities. For further information, go to SIPC's website.

Remember, part of making the right investment decision is finding the brokerage firm and the sales representative that best meet your personal financial needs. Do not rush. Do the necessary background investigation on both the firm and the sales representative. Resist salespeople who urge you to immediately open an account with them.

Before you decide which broker to do business with, ask these questions directly -- and double-check the records, if you can, to see if the broker has given honest answers:

  • How long have you been in the business?
  • What training and experience do you have?
  • Are you registered with our state's securities regulator?
  • What is your investment philosophy?
  • How would you describe your typical client?
  • Can you provide me with some names and telephone numbers of your long-term clients?
  • How do you get paid? By commission? Amount of assets you manage? Another method?
  • Do I have any choices on how to pay you? Should I pay you by the transaction? Or a flat fee regardless of how many transactions I have?
  • Do you make more if I buy one specific stock [or bond, or mutual fund] rather than another?
  • If you weren't making extra money, would your recommendation be the same?
  • Are you participating in any sales contests?
  • Is the purchases you suggest really in my best interest -- or are you trying to win a prize?
  • You've told me what it costs me to buy this stock (or bond, or mutual fund). How much will I receive if I sell it today?
  • Where do you send my order to be executed? Can we get a better price if we send it to another market?
  • Have you ever been disciplined by the SEC, a state regulator, or other organization?
  • If your broker changes firms, ask: Did they pay you to change firms? Do you get any bonus or incentive for bringing me along to your new firm?

How Do I Find Out If an Old Stock Certificate Has Value?

An old stock certificate may still be valuable even if the stock no longer trades under the name printed on the certificate. The company may have merged with another company or simply changed its name.

You can use the following resources to find out if an old stock certificate has value. They may be found at public libraries, stock exchanges, or stockbrokers' offices.

  • Financial Stock Guide Service. Published by Financial Information, Inc., 30 Montgomery Street, P.O. Box 473, Jersey City, NJ 07303. This comprehensive guide is a good starting point for all research on old stock certificates. Published since 1927, this listing contains a directory of actively traded stocks and obsolete securities. This service provides a brief profile of companies whose original identities have been lost. The guide is updated annually and through monthly supplements
  • Robert D. Fisher Manual of Valuable & Worthless Securities. Published by R.M. Smythe & Co., Inc., 24 Broadway, New York, NY 10004. This is a particularly helpful guide if you are trying to trace the value of very old stock certificates. Volumes 5 through 15 list companies whose securities may have a value or may be worthless. This reference superseded the Marvyn Scudder Manual of Extinct or Obsolete Companies, which was published by Marvyn Scudder in four volumes and included stocks issued from 1926 to 1937
  • Moody's Industrial Manual and Moody's OTC Industrial Manual. Published by Moody's Investor Service, Inc., 99 Church Street, New York, NY 10007. These manuals give brief summaries of companies' histories, backgrounds, mergers and acquisitions, subsidiaries, principal plants, and properties. This guide is updated annually
  • National Stock Summary. Published by National Quotation Bureau, Inc., an Infobase Holdings Company, 150 Commerce Road, Cedar Grove, NJ 07009-1208. This monthly publication summarizes all over-the-counter and inactive listed stock offerings. It also includes the recent prices of such securities, as they have appeared either in the national daily quotation services or in the leading daily newspapers and financial periodicals
  • Security Owner's Stock Guide. Published by Standard & Poor's Corp., 25 Broadway, New York, NY 10004. This brief monthly guide provides basic information on stocks and mutual funds, along with stock price indexes. It also includes statistical tables for common and preferred stock.

Where Can I Find out Whether a Company Is Registered under Rule 505 of Regulation D (Reg D)?

Companies do not actually "register" under Reg D. Instead, Reg D provides exemptions from the SEC's registration requirements. While companies using a Reg D exemption do not have to register their securities and usually do not have to file reports with the SEC, they must file what's known as a "Form D" after they first sell their securities. Form D is a brief notice that includes the names and addresses of the company's owners and stock promoters, but contains little other information about the company. The Form D will specify under which Rule the company has applied for an exemption.

If you are thinking about investing in a Reg D company, you should call the SEC's Public Reference Branch at (202) 942-8090 or send an email to publicinfo@sec.gov to determine whether a company has filed Form D or to obtain a copy. If the company has not filed a Form D, this should alert you that the company may not be in compliance with the federal securities laws. Because the Form D is filed only after securities have been sold, you may also want to check with your state securities regulator for more information about Reg D companies.


How Do I Get a List of a Company's Shareholders?

Although investors sometimes ask the SEC for a list of a company's shareholders, the SEC does not maintain shareholder lists. Only the company itself has access to this information.

Under SEC rules, a company must provide shareholders with a process for contacting other shareholders in two limited situations. The first occurs during proxy solicitations -- when shareholders solicit proxies in opposition to a company proposal or for a vote on a proposal they favor. The second occurs in connection with a tender offer where persons seek to acquire the company's securities from existing shareholders. In both cases, the company may choose to either give the list to the person who requested it or mail the shareholder's soliciting or tender offer materials to other shareholders at the requesting shareholder's expense.

State laws or a company's charter and by-laws may provide for access to shareholder lists in additional circumstances. To find out how you can obtain more information about a company from the state in which it was incorporated and does business, you can visit the website of the National Association of Secretaries of State.

Please feel free to give us a call at (858) 259-7790 or contact us online.

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