Florida Securities Fraud Lawyer Blog
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The SEC has issued an Investor Alert regarding fraudsters attempting to profit by exploiting the dangers associated with the Zika virus.  For those not following the news, Zika is a tropical disease transmitted by mosquitoes.  Outbreaks have been reported in South America, with cases popping up in the United States.  Zika infections in pregnant mothers have recently been linked to microcephaly in babies, i.e., babies born with heads much smaller than expected, leading to significant public health concerns.

According to the SEC, fraudsters are attempting to sell investments in companies supposedly developing treatments or other products for Zika.  Scams could include so-called “pump-and-dump” schemes, whereby fraudsters encourage investors to buy shares in a company or a fund by spreading rumors that the company is involved in developing a treatment or cure for Zika.  The rumors prompt investors to buy the shares, thus driving up the price.  The fraudsters then sell their shares while the price is high but before the truth is revealed.  Penny stocks are particularly susceptible to this kind of fraud.  As always, be wary before sinking a significant sum of money in penny stocks.

The SEC recommends that investors use common sense before putting money in a Zika-related investment.  Specifically, before making any investment – especially one tied to Zika – an investor should do the following:

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In our law firm, we frequently represent elderly clients in claims against brokerage firms and financial advisors.  These claims usually include allegations that the broker took advantage of the elderly client, or recommended improper investments that benefited the broker more than the client.

Why and how do the elderly become so vulnerable to stockbroker abuse?  Some of the answers may surprise you.

Isolation and Loneliness  We have seen, over and over, elderly clients who are isolated and lonely.  We practice in South Florida, a haven for elderly retirees.  Many times, our clients’ families and loved ones live thousands of miles away.  On a day-to-day basis, these clients have very few friends or social interactions.

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As the investing population ages, it becomes more and more likely that investors will suffer failing physical and/or mental health.  Your permanent – or even temporary – incapacity could make managing your own investment accounts impossible.  One potential preemptive solution is for you to give a power of attorney (POA) to a family member or trusted friend for your investment accounts before you become incapacitated.

A POA is a legal document that permits the person you name to make decisions on your behalf.   The person who is named in your POA is called your “attorney-in-fact.”  Giving someone else control over your finances shouldn’t be done lightly. Yet, it can be vital if you unexpectedly become incapacitated because of a stroke, auto accident, or other unforeseen event.

Here are a few things to consider before you grant someone else power over your investments:

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Last spring, FINRA launched a Securities Helpline for Seniors – known as HELPS – as a resource for senior investors with questions and concerns.  With the country’s growing population of senior citizens, who are often targeted in fraudulent and deceptive investment schemes, the HELPS line is just another resource in FINRA’s recent push to protect our aging population.

The HELPS line launched on April 20, 2015, and through December 2015, more than 2,500 calls had been placed through the hotline.  The average age of the caller was 70 (though the actual age range was 22 to 100), and the calls lasted an average of 25 minutes each.  In 2015, HELPS staff assisted callers in recovering $750,000 in voluntary reimbursements from securities firms.

FINRA is also using data collected during calls to assist it with its regulatory goals.  By tracking trends in the calls placed to the hotline, FINRA can more readily issue Investor Alerts on topics of current interest.  For instance, after a spate of calls about transfer on death accounts, FINRA issued an Investor Alert about that specific topic.

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Starting May 16, 2016, companies can use crowdfunding to offer securities to John Q. Public.  Crowdfunding generally refers to obtaining small individual investments from a large number of people to finance a particular project. Here are some helpful tips to see if making a crowdfunding investment may be right for you.

Who uses crowdfunding?

Startups and early-stage ventures may use crowdfunding to seek financing for the development of a new product or service.  Prior to the approval of crowdfunding regulations, this type of “ground-floor” investing was typically unavailable to the mom and pop investor.

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Securities arbitration is the legal process by which most disputes between customers and brokerage firms are resolved.  Arbitration is an alternative to traditional litigation, which takes place in a courthouse before a judge and jury.

When a person goes to arbitration, he or she is giving up, or surrendering, the right to have a dispute heard by normal court or jury. For this reason, arbitration can only happen by agreement of the parties, usually by way of a signed arbitration agreement.

Many businesses today insert an arbitration clause into the boilerplate language of their agreements with customers. The brokerage firm industry is no exception. The new account paperwork for almost every brokerage firm in the United States contains a mandatory arbitration clause.

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Many investors may be familiar with an investment known as a REIT, or real estate investment trust.  A REIT is a trust or a company that owns real-estate-related assets, such as apartment buildings, commercial office space, or mortgage debt.  REITs come in many shapes and sizes and often specialize in one type of real estate or another.  REITs can be legitimate investments, but not all REITs are created equal.

Investors should be aware of “non-traded REITs.”   Many REITs are publicly traded, meaning that they have been registered with the SEC and are easily tradeable on the New York Stock Exchange or NASDAQ.  A “non-traded” REIT, by contrast, is not traded on a stock exchange and is usually managed by an external manager paid through transaction fees.  Though they are registered with the SEC, non-traded REITs may present significant risk to the average investor.

First, non-traded REITs generally lack liquidity, or marketability.  While a portion of total shares outstanding may be redeemable each year, redemption offers may be priced below the purchase price or current price. An investor may have to wait a number of years before the REIT is listed on an exchange to sell his or her shares.  If you may need to sell your shares in the REIT in the near term to raise cash, a non-traded REIT might not be a suitable investment choice for you.

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High-yield CD’s offer higher interest rates than other bank products.  What the promoters of these high-yield CD’s don’t tell you is that the commissions are much higher than bank CD’s.

The Financial Industry Regulatory Authority (FINRA) recently issued an investor alert to warn investors that some companies are now using marketing ploys in which a high-yield CD is used as a bait and switch tactic.  The ploy is to sell you a high-commission fixed or equity-based annuity, which is not FDIC insured, when your intention was to buy a CD.

Part of the marketing ploy is that the high-yield CD’s includes a “bonus” paid to you.  This bonus is an incentive paid by the company to get you in the door so that you can hear a pitch for another high-commission product.

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Are you just starting to invest and ready to open your first brokerage account? Are unhappy with your current broker?  Here are some tips from the Financial Industry Regulatory Authority (FINRA) on how to find the right financial advisor and brokerage firm.

Ask for Recommendations

Talk to your friends and family members about who they invest with and for how long.  Ask them specific questions about their broker such as the kinds of services they were provided, whether the broker communicates with them regularly, have they had an problems or “bad experiences” with either the broker or his/her brokerage firm?  Don’t hire a broker just because he or she came highly recommended, and don’t stop when you get one name. Try to compile a list of at least 5 potential broker candidates.

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Many people work their entire lives to accumulate a nest egg of savings for retirement.   Others find financial success mid-career.  Either way, accumulating money can be surprising in one respect:  wealth often leads to stress.

Why?  Because it can be extremely stressful to realize that the fruits of your entire life’s work can be wrapped up in one Merrill Lynch, Morgan Stanley, or Citigroup account statement.   Retirees know how long it took to accumulate their 401K accounts.  Business people know how hard they had to work (or how lucky they had to be) to make their money.

In short, the money is irreplaceable.  During the financial crisis 2008, many investors lost huge portions of their life savings as a result of negligent or foolish recommendations by their brokers.  Smart people should ask themselves the following questions: