How to Recognize if You’re the Victim of Financial Fraud (And What to do About It)

The following is adapted from The Investor Protector.

No one wants to be a victim. We like to believe that we’re in control—particularly when it comes to our finances—and that we have the power to change a bad situation and make it right. Unfortunately, that isn’t always the case.?

Over the past 20 years, I’ve seen thousands of people fall victim to financial fraud. But what I’ve learned is the quicker you regain your composure after learning you may have been taken advantage of by a bad advisor, the closer you are to recovering your money.

It’s not always easy to spot the signs that your investments have gone south as a result of misconduct by your advisor or financial firm. However, there are a few red flags you should watch out for. If you notice any of these things, it may be time to look for an experienced investment fraud lawyer.

#1: Large Fluctuations in Your Investment Portfolio

Investments that take a sharp dive can easily capture investors’ attention. But when investments spike upward quickly, we’re less likely to be concerned or ask questions. We may even praise our broker. But if an investment gains a steady return month after month in a time when the market is experiencing significant fluctuations or is otherwise flat, this could be a sign of a problem.?

Any large fluctuations in your investment—in either direction—should prompt you to ask questions. Even if your broker has an explanation that sounds reasonable, contact their supervisor and request a meeting to review your account. It never hurts to have more information, and if something is wrong, the sooner you catch it, the better.?

#2: Sudden Changes in Your Account Activity

Whether you receive electronic or hard copies of your account activity every month, take the time to review these statements yourself. Never rely on a statement your broker personally provides.?

Account activity varies from investor to investor, but once you’ve established a baseline for your “normal,” it’s ideal to keep an eye on your statements to make sure there are no sudden changes, such as a flurry of trade confirmations or large movements in or out of a particular investment strategy.?

I understand that life often gets in the way, making it difficult to do a deep dive into the specifics of your account holdings. However, the more you can keep an eye on what’s going on with your portfolio, the more likely you are to spot potential issues as soon as they appear.

#3: No Contact with Your Advisor

You should be able to reach your advisor with any questions or concerns in a reasonable timeframe. If you try to contact your advisor and they are consistently unavailable or fail to return your calls, you can bet there’s a problem with your account.?

If your advisor is evasive when you ask questions and doesn’t give you straight answers, this is another red flag. Other signs of a problem with your advisor include high-pressure sales tactics, promises of no risk or minimal risk, excuses for not being licensed, or the promotion of unregistered investments.

Don’t Try to Work It Out Alone

When investors are convinced something is wrong with their investment, they often go directly to their financial advisors. It makes sense—you’ve trusted them this far; surely you can trust them now to explain the issue. But it’s rare for the bad actors to come clean and make it right at the outset. And if they do try to pay you off to settle the complaint without involving their firm, they create a host of potential issues.

First, financial advisors are not allowed to simply reimburse you out of their own pocket for any wrongdoing on their part in an attempt to wash their hands of the ordeal. Specific regulatory disclosures must be made the second you lodge a complaint against your advisor. Any advisor who tries to pay you under the table is flouting these rules.

Second, investment loss analyses are complicated and usually require a forensic expert to unpack. When financial advisors attempt to give a client money to fix the problem, the offer is usually not even close to the sum the investor lost from the advisor’s actions. It may tempt you to take the money and run, but the offer is likely a small fraction of your actual losses.?

You Need an Ally

While I sincerely hope that you never find yourself the victim of potential financial fraud, it happens often enough that you should familiarize yourself with its signs. If you notice any of these red flags—from suspicious account activity to unexpected, large fluctuations in your portfolio, or even an inability to get in touch with your advisor—don’t try to handle it yourself.?

If you do, I can almost guarantee you’ll receive a letter from the firm suggesting they conducted a “thorough” review of your complaint and found no wrongdoing on their part. I’ve seen hundreds of these “denial” letters from firms to their customers, and in my experience, these denial letters serve one purpose: to convince the client to drop the complaint and not hire an investment fraud lawyer to pursue their claims. Don’t fall for this trick.?

Instead of trying to handle it yourself (and, inevitably, getting stonewalled by the firm), you need an ally and advocate. You need a lawyer who devotes their legal practice to investment fraud and can tell you if you have a case and what that case is worth. Most of us in this line of work will provide free case consultations. You have nothing to lose and everything to gain by consulting a good lawyer.

For more advice on what to do if you believe you’re the victim of financial fraud, you can find The Investor Protector on Amazon.

David Meyer is the managing principal of Meyer Wilson, a national law firm he founded to represent investment fraud victims in their fight against deceptive brokers. Meyer Wilson is one of the nation’s leading investment fraud firms, recovering millions of dollars for clients throughout the last 20 years. David is currently the president of two bar associations: the Public Investors Advocate Bar Association and the Ohio Association for Justice. Included in The Best Lawyers in America?, David has also been twice named “Lawyer of the Year'' by the publication in his practice area and location. For more information about David’s investor claims law practice, visit investorclaims.com.