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What are common investment fraud schemes, according to FINRA?

On Behalf of | Dec 3, 2020 | FINRA |

Pennsylvanians who are investing their hard-earned money and trusting their future to advisers and firms have the right to expect aboveboard behavior and for the law to be followed. Unfortunately, there are many acts of fraud that engulf even the most vigilant investor. People who are inexperienced in investment language and strategies and simply trust the wrong person can find themselves victimized and lose significant sums of money. This erosion of trust is why the Financial Industry Regulatory Authority (FINRA) is in place.

Frequently used tactics to commit fraud

For those who believe they might have been subjected to illegality, it is important to have legal advice. Also, understanding some common scams can be useful to recognize when something is amiss. If a financial adviser is telling a prospective investor that there is an opportunity that will bring major wealth, it is called “phantom riches.” If the promised income is unrealistic, it likely is. Some advisers promote themselves as credible and say their reputation is on the line as part of selling their product. This is called “source credibility” and should be viewed with some reluctance.

A “social consensus” offer suggests that others have invested in the product and that failure to take part is missing out on a great chance to raise the value of their portfolio. If the adviser is making an offer as if it is a favor, it is called “reciprocity.” An example is to get the investor to buy immediately in exchange for a reduction in cost or fees. Finally, suggesting that the item is in limited supply (the “scarcity” tactic) is to create urgency. All these techniques are cause for wariness.

Legal advice can help when facing financial wrongdoing

FINRA gives advice for people who are subjected to these sales strategies including terminating the sales discussion, asking pointed questions, discussing the idea with a third party who has knowledge and is neutral, and removing one’s name from call lists. Still, people are victimized seemingly every day with these and other methods to get their money in an untoward and illegal manner. If there was wrongdoing, there are options such as filing a complaint, entering arbitration and seeking damages. Calling a firm with experience in FINRA cases can be helpful when trying to recover what they have lost.




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