Recently,
the Financial Industry Regulatory Authority (FINRA) published a comprehensive
survey on the scope of financial fraud and the characteristics of likely
victims. The report, entitled
“Financial Fraud and Fraud Susceptibility in the United States,” presents a
troubling view of the breadth of investment fraud schemes and the vulnerability
of investors.
The report
shows that investors are inundated with a vast array of fraudulent schemes
through a variety of sources, and are unfortunately ill-equipped to recognize
the signs of fraud. According to the
report, financial fraud solicitations are commonplace, with 8 in 10 investors
reporting that they were solicited to participate in a potentially fraudulent
offer. Many of these investors are
vulnerable because they cannot identify the classic red flags of fraud. And, among all victims, older Americans are
more likely to be targeted by fraudsters and were more likely to lose money once
targeted.
The report also offers this important
insight into those investors who do suffer losses from fraud -- most feel
powerless to affirmatively respond and protect themselves. Of the investors who acknowledged being
defrauded, a majority (55%) failed to report the fraud. The most prevalent reason identified for
failing to report fraud was the belief that it would not have made a difference
(53% of victims). Other major reasons
for not reporting fraud were that victims did not know where to turn (40%),
they wanted to put the episode behind them (32%) or they were embarrassed
(27%). These anemic numbers are
obstacles to victims obtaining compensation for their losses and encourage
fraudsters to continue their schemes without fear of being held to
account. While the report stops short of
postulating a causal relationship, a persuasive argument can be made that
incidences of fraud can be reduced if a higher percentage of victims are
empowered to take action against the advisers who commit fraud. The more
frequently victims seek compensation for their losses, the more likely firms
will increase their oversight of rogue brokers to prevent paying damages in
arbitration proceedings. Additionally, a
higher incidence of reporting fraud to the SEC, to FINRA, or to their state
Departments of Securities will likely result in a greater number of regulatory
investigations that can strip fraudsters of their licenses to sell
securities.
Empowering
investors to take action in response to fraud will take a concerted and
enduring effort to educate them about their options. There is a considerable need for these type
of efforts because of the significant damage done by investment fraud. A joint review conducted by the FINRA
Investor Education Foundation and the Stanford Center on Longevity estimated
that fraud costs Americans more than $50 billion every year.
Investors
who want to pursue claims against their advisers should contact experienced
securities fraud attorneys. For more
than twenty years, the lawyers at Block & Landsman have represented
investors seeking compensation for investment fraud. If you want to investigate whether your
investment losses were caused by fraud, call Block & Landsman for a confidential
and free consultation.
