Investment Fraud

What is investment fraud? How can you distinguish between legitimate and deceptive investment opportunities? How can you catch investment fraud proactively? What should you do if you have suspicions of a fraudulent scheme?

Investment fraud has become increasingly challenging to detect, causing many people to lose money. In response, we have prepared this guide to help you learn how to detect such deceptive practices. If you have invested funds into any business that turns out to be fraudulent, it’s best to contact an experienced investment fraud lawyer immediately.

What Constitutes Investment Fraud?

Investment fraud is a deceptive practice to mislead and manipulate investors into making adverse financial decisions. Investment fraud comes in many forms but generally involves presenting false information to investors to entice them to give away money in the guise of investment. Ultimately, the fraudster gains financial advantage to the detriment of the investor. Examples of investment fraud include Ponzi schemes, pyramid schemes, pump-and-dump schemes, and high-yield investment schemes.

Investment fraud can lead to significant financial losses. The emotional implications also cannot be understated. If you have suspicions of investment fraud, consult an investment fraud attorney at Calabrese Law Associates immediately.

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Common Signs of Investment Fraud

Below are the common signs of investment fraud:

Unusually high returns: Have you been offered a ripe investment prospect with astronomically high returns and little risk? The chances are it’s a scam. If an investment opportunity seems too good to be true, it probably is.
Overly complex investment strategies: Some investments are complex, but if the return-yielding process is challenging to explain, vaguely described, or overly technical, it’s best to consult a professional before making a decision.
Lack of transparency: Is the broker or business owner evading your questions or failing to communicate with you properly? Are they withholding information or refusing to provide written documentation? While there may be valid reasons for these issues, it’s best to tread carefully in such circumstances.
Requesting account details: Most scammers, especially those who operate over the phone, will likely ask for your checking account or credit card number. First, only close any transaction if you have sufficient information about the broker. Second, refrain from sharing confidential information until you confirm the investment’s credibility.
Unprofessional conduct: Legitimate investment brokers are generally top professionals with some level of training. Even if you deal directly with the business owner, assessing their conduct is essential. For example, if they refuse to give out their physical address or contact information, you should be cautious before proceeding.
High-pressure sales tactics: Last but not least, beware of sales pitches that require you to act quickly without giving the opportunity much thought. Remember, investments are assets, so it’s essential to research before committing. If the broker pushes you to make any decision immediately, you are dealing with a potentially fraudulent transaction.

How to Catch Investment Fraud Proactively

In addition to the red flags discussed above, the following can help you detect investment fraud proactively:

Conduct due diligence: Due diligence is one of the most proactive countermeasures against investment fraud. It allows you to confirm the investment’s credibility while learning more about its prospects. Considering how challenging it can be to detect fraud, it’s best to hire an investment fraud lawyer to help you.
Monitor your investments for inconsistencies: Even after you invest in a business, it’s essential to monitor your portfolio for unusual activities. This allows you to catch scams early before they escalate.
Communicate with your investment advisor regularly: Investment professionals have the experience to identify unusual activities. Whether making a new investment or managing an existing portfolio, regularly communicating with your advisor is advisable. You can leverage their knowledge to safeguard your investment.

What Are the Legal Aspects of Due Diligence?

Investors must take precautions, including investigating the business and individual offering the investment opportunity. This investigative process is called due diligence. Among other things, it allows the investor to ascertain the business owner’s credibility and can provide a legal defense in case of a lawsuit. There are different types of due diligence, including the following:

Legal due diligence: This aspect of due diligence covers legal matters, such as proper ownership and incorporation, legal capacity, contractual obligations, and regulatory compliance.
Financial due diligence: This aspect of due diligence covers the financial aspects of the transaction, including valuations and projections.
Tax due diligence: This review is to ascertain the business’s compliance with relevant tax laws. It may be considered as an extension of legal due diligence.

Due diligence is a comprehensive exercise but generally includes the following:

Preliminary assessment based on initial information received.
Compiling information about the investee and the investment opportunity.
Conducting background searches and reviewing documents.
Requisitions and interviews.
Visiting the business premises.
Risk assessment.
Reporting findings.

What Should Be Included in an Investment Contract?

An investment contract is formed when someone makes an investment of money in a common enterprise, such as a business, with the expectation of profit to be derived from the efforts of others. While these types of contracts can vary in their terms, they typically contain provisions such as the following:

Party details: The agreement should provide details about the parties, including their names, addresses, and contact information.
Purpose and nature of investment: The contract should define the purpose and nature of the investment, including the type of investment and project specifications.
Investment terms: The agreement should clearly outline the terms of the investment, including the ownership stake, investment amount, expected returns, and payment schedule.
Representations and warranties: The contract should include assurance by parties regarding the accuracy and completeness of the information provided.
Confidentiality and non-disclosure: The contract must include provisions on confidentiality to protect parties against misuse of information and exploitation.

Contracts can serve as evidence of the transaction and a deterrence to fraudsters. In case of a breach, the investor may rely on the contract to recover damages for the losses.

What Is an Investment Policy Statement?

An investment policy statement (IPS) details the investor’s financial objectives and the roles and obligations of parties in the management of an investment portfolio. It provides the framework for managing the investor’s assets and strategies for achieving the desired goals. A well-drafted IPS can safeguard against investment fraud by subjecting portfolio managers to strict rules. It also serves as evidence of the relationship between investors and investment managers or advisors, allowing the former to sue in the case of fraud.

Steps to Take If You Suspect Investment Fraud

What do you do when you suspect investment fraud? Here are some helpful tips:

Cease further investment: Stop contributing additional funds as soon as you suspect fraud. This will help you mitigate your losses.
Notify your financial institution: If you have an account connected to the investment, inform your bank or financial institution immediately. That will help you block unauthorized deductions. Plus, they can help you monitor your account for unauthorized activity and provide guidance on securing your investment.
Gather evidence: Obtain all documentation, including investment contracts, emails, receipts, and bank transfers. Any form of information that demonstrates fraudulent behavior or misrepresentation is also essential. You may need them to establish a claim if it becomes necessary to take legal action.
Consult an investment fraud lawyer: Attorneys can help determine the appropriate legal step. Additionally, an attorney can provide legal representation if they determine that instituting legal action is ideal. The standard for establishing fraud is relatively high, so it’s vital to go to court prepared.
Seek restitution: After reviewing your case, the investment fraud attorney may advise that you proceed to court to seek compensation for your losses. The type of action you pursue will depend on the facts of the case, and so will the strategy.

Why Choose Calabrese Law for Your Investment Fraud Case?

The investment fraud attorneys at Calabrese Law Associates are ready to guide you through your investment fraud case. Here are three reasons to partner with us:

Experience: Calabrese Law Associates has a team of professionals with a deep understanding of investment fraud laws, regulations, and legal strategies. Our lead private investment attorney, Peter Calabrese, has a track record of handling complex and diverse cases, demonstrating depth of experience.
Aggressive representation: Regardless of how tough investment fraud cases can be, we advocate fiercely to safeguard our client’s interests and rights. We employ a proactive approach to pursuing justice. Every situation matters, so we strive to level the playing field and maximize the potential of a favorable outcome.
Dedicated support: We understand dealing with the aftermath of investment fraud can be emotionally and financially draining. That’s why we support our clients through challenging situations. You can count on us to be available and responsive to your needs.

Do You Need an Investment Fraud Law Firm?

If you need legal assistance regarding an investment fraud case, Calabrese Law Associates is the partner you need. We provide practical legal solutions to investors in the Greater Boston Area and throughout Massachusetts. Our attorneys value positive client relations and will guide you every step of the way. To learn more about our services, contact us now!

This publication and its contents are not to be construed as legal advice nor a recommendation to you as to how to proceed. Please consult with a local licensed attorney directly before taking any action that could have legal consequences. This publication and its content do not create an attorney-client relationship and are being provided for general informational purposes only.

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