San Francisco Investor Fraud Attorneys

Types of Investor Fraud

Many Americans rely on financial advisors and accountants to identify and manage investment opportunities. These financial professionals serve as fiduciaries, meaning they owe their clients a legal duty of care. Most financial advisors and accountants operate in good faith and act in the best interest of their clients. Some, however, may take advantage of clients’ trust and breach their fiduciary duties.

New forms of investor fraud are constantly emerging, and cutting-edge investment opportunities that may seem perfectly legitimate could actually be complex fraudulent schemes. It is important that you familiarize yourself with some of the most common investor fraud vehicles so that you can proactively avoid falling victim to an investment trap.

Prominent types of investor fraud include:

• Promissory Note Fraud. A promissory note is a loan agreement commonly used for mortgages and vehicle loans. Buying and selling promissory notes is an inherently risky investment strategy that is heavily regulated by the U.S. Securities and Exchange Commission (SEC). “Short-term notes” are especially dangerous, as sellers do not need to register the notes with the SEC and thus escape regulatory scrutiny. All investment opportunities have some element of risk, but you may be the victim of fraud if your financial advisor misrepresented the level of risk involved. 
• Pyramid Schemes. A pyramid scheme can be perniciously disguised if the program appears to sell a legitimate good or service. Because the pyramid has no underlying investment, investors can lose significant funds as they attempt to “climb the pyramid” with no promise of a legitimate return. ROI being tied to the number of people you recruit to the program is a major warning sign that you may be an unwitting participant in a pyramid scheme.
• Ponzi Schemes. A Ponzi scheme can also be carefully concealed by a skilled scam artist. Like with a pyramid scheme, a Ponzi scheme offers no underlying investment, and you may be asked to bring additional parties into the phony investment. You should never contribute funds to any fund that lacks underlying assets.
• Real Estate Fraud. There is a perception that real estate is always a safe investment. The reality is that any investment carries inherent risk, and some types of real estate investments may be riskier than others. Purchasing distressed properties or attempting to “flip” properties can both potentially end in disaster. Even purchasing a rental property can result in losses if you have bad tenants or are stuck with an unprofitable venture. You should always avoid hard-money lending, which constitutes real estate investments that do not involve banks or other lending institutions. Remedies may also be available if your financial advisor misrepresents the riskiness of real estate investments.
• Social Media Fraud. Scam artists will sometimes use popular social media platforms like Facebook to source participants in fraudulent schemes. They will often target older and vulnerable individuals that are inherently trusting and less familiar with investment strategies. In some cases, the perpetrator may even be someone you know. Genuine investment opportunities are rarely found through social media. 
• Cryptocurrency Fraud. Cryptocurrency is one of the latest technological evolutions and is making major waves throughout the financial and investment communities. It is important to understand that cryptocurrency – including popular “currencies” like BitCoin – is completely unregulated. This means that any investment in a new “currency” comes with tremendous risk, and you should only consider investing if you have a thorough understanding of how crypto works and the consequences involved if the opportunity does not pan out.