When you’re investing your money, you’re doing so through a broker who has the kind of specialized knowledge that you don’t necessarily have. Maybe you accrued your wealth incrementally through a business or job and want to see that sum make more money through investments. When you choose a broker, you often have to go on their reputation alone. The average investor doesn’t have the tools necessary to do a background check or to recognize the signs that a firm’s committing fraud.
Protecting your money from unscrupulous brokers
Congress grants the Securities and Exchange Commission (SEC) the power to penalize those who commit fraud. When a company violates federal securities law, there are many ways a defrauded and financially-injured investor can receive distributed assets from the company that defrauded them. Here are some ways that the SEC provides legal frameworks to protect defrauded investors:
- Fair funds/disgorgement funds: A civil court can order a company to pay disgorgement (some of the assets gained from a fraud) into a Fair Fund to distribute to victimized investors.
- Brokerage account protection: When an investor uses a U.S. registered broker-dealer, they are entitled to certain protections through the SEC’s Customer Protection Rule. The rule states that the broker-dealer should keep an investor’s assets in a place with legal protection from the company’s creditors.
- Corporate bankruptcy: The chapter of bankruptcy that a company files, plus the condition of that company’s finances, can determine whether an investor can recover any funds from that company once it files for bankruptcy.
- Private Class Actions: Theses are group lawsuits suits, which can include multiple investors defrauded by the same company.
Discovering your options
Don’t let unscrupulous brokers and firms take your hard-earned money without repercussions. If you’re the victim of fraudulent securities activity, you’ll need an attorney skilled in securities law to explain all the options you have for recovering those funds.