One of the main ingredients when investing is that of having confidence in the integrity of the companies involved in the investment procedure. This could involve banks, investment brokers, people who act as consultants to investors and, of course, the companies in which one wants buy stock.
There are governmental protection laws now in most countries. These laws are in place to not only protect investors but also to give reasons for companies, consultants, brokers and banks to continue to operate honestly. Although many investors are now alert enough to spot irregular activities of the type that suggest the presence of securities fraud, there are a lot of novices in the investment business. Many of these newcomers place trust in everyone. These novices are the ones targeted by scam artists in the securities investment business.
Bank fraud is one area where some people are scammed. There are a number of methods used by a few banks to get money from people without being caught. One method is to purposely make errors in accounting, smaller errors which unsuspecting account holders may not even notice or errors which are considered too small to complain about. The auditing of banking records often locates these errors.
Securities fraud sometimes occurs when a broker or a financial consultant offers information which is not complete or not accurate. Sometimes the information is given with the purpose of influencing someone to make investments based on the broker’s preference regardless of the facts gained in research. At times, the broker or consultant himself may have something to gain by recommending a particular investment action by his client. This type of activity is illegal.
There are now legal guidelines for stock brokers and securities advisors to use to be sure that their activities are legal. Included in the guidelines are such areas as honesty by dealing fairly with all clients, making trades such as buying or selling of stocks only with the consent of the clients, disclosing all the terms involved in credit purchases so there are no secrets from the clients, insider trading activities which includes making the same trading suggestions to all clients instead of to only a few favorite clients, and finding the best deal for each client on an individual basis. These guidelines exist to prevent people being victims of securities fraud.
The guidelines above are good and provide a good beginning to protecting investors. Still, securities fraud still exists. A few firms attempt to deceive people with money to invest, and a few them succeed. In the last five years there have been some notable instances of brokers or banks deceiving investors. Some of them have lost court battles and have had severe penalties for their deception. Regardless of the laws, investors should maintain an awareness of deceptive practices and report any suspicious activities.