Articles Posted in Stock Fraud

In rough economic times such as these, many investors have seen their accounts suffer large losses. As New York securities lawyers, we’ve seen some investors’ accounts lose 25-50% over the course of a few months or years, while others have seen their accounts lose such large amounts seemingly overnight. A large drop in account value is unsettling for every investor, but for those nearing retirement or senior citizens living off their savings, large losses are extremely alarming and can be devestating. Regardless of their age or situation, investors who have suffered large losses often find themselves asking the same questions, “Is my account down because of the market, or is it something else?”

Investors who are approaching retirement or who are already retired are typically risk-averse – i.e. willing to accept lower returns to avoid the possibility of devastating losses. However, many of these investors find themselves being sold on “sure thing,” “big winner,” “can’t lose,” and “have your cake and eat it too” investment strategies that seem, and in fact are, too good to be true. Those who buy into these false promises can find themselves unknowingly invested in products and strategies that are much riskier than what they wanted, and most importantly, what they should have been invested in. Unfortunately, good times in the market can hide these risks from the average investor. It is not until a downswing in the market that these risks come to light, often taking the form of large, unexpected and crippling losses.

Many people who want to invest seek out professional guidance in handling their savings and their investments because they feel safer in the hands of professionals whom they trust and whom they believe are looking out for their best interests. Unfortunately, this trust can be abused and investors often find themselves in accounts that are not suitable for their financial needs and the amount of risk they are willing to take with their investments.

FINRA issued a warning to investors yesterday to about the risks of seeking higher yield with structured products, junk bonds and floating-rate bank-loan funds. It is a reality of New York securities law that with fixed income yields at historic lows, many investors who want to avoid the volatility of the stock market have found themselves with seemingly nowhere to go.

Many of these investors have found themselves lured in by structured products promising of higher yield with “principal protection” or junk bond funds promising higher yield with “professional management”. FINRA reports that there have been significant increases in sales of high-yield bond funds, floating rate funds and structured products. These products have seen more than $100 billion in increased sales since interest rates fell.

However, average investors often don’t look into or have trouble understanding the risks and fees associated with these investments. Investors typically only focus on the higher returns that these investments offer but should also be aware that these products typically have higher risks and fees associated with them.

The Securities and Exchange Commission has issued a bulletin warning of potential securities fraud among companies that went public through a reverse merger, which New York securities lawyers can recognize as a too common cause for alarm.

A New York Investment Fraud Attorney should be consulted whenever a firm becomes aware of a state or federal investigation. If you are an employee who has been a whistleblower or wants to cooperate with an investigation, the earlier professional legal advice is engaged, the better the chances of a positive outcome. Likewise, those who believe they have been victimized by stock fraud need to proactively seek quality legal representation as early as possible. Multiple competing claims, criminal investigations, bankruptcy and other complications may or may not ever permit investors to be made whole. But those at the front of the line generally stand the best chance of making a financial recovery.The Street reporter Scott Eden reports in “SEC Warns on Reverse Merger Stocks” that the bulletin comes amid a growing stock scandal involving Chinese small-cap stocks that used the controversial process. News reports of fraud and theft of capital have plagued the Chinese small-cap stock sector since early spring. Several companies have reported auditors resigning or refusing to sign off on 2010 financials, which must be filed in annual 10-K reports with the SEC. Trading has been suspended for more than 15 Chinese companies — tens of billions of market capital have evaporated as many stocks in the sector have lost at least half their value.

In a reverse merger, a privately held business obtains a registered listing by combining with a listed shell company. While legal, the process has been criticized as a means of bypassing the scrutiny of regulators, who more rigorously review bigger issues by companies looking to raise significant amounts of capital. Since 2009, there has been an uptick of Chinese companies using the process to list shares on major exchanges; in some cases, the companies have been affiliated with the same stock promoters, investment banks, auditors and attorneys.