Many new traders and investors have been victims of forex scams. In addition, there are various scams one should be aware of if they wish to enter the financial market.
The first ever recorded scam was in 300 BC by two Greek merchants. But, of course, things didn’t go as planned; one of the merchants died while escaping, and the other was tried in law. As civilizations advanced, more and more scams evolved. From the time of Roman emperors to date, many scams have come and gone. However, few stood the test of time adapting to their surroundings.
Laws have become stringent, and many have been tried, from Bernie Madoff, a ‘Ponzi Schemer’ to ‘Wolf of Wall Street’ Jordan Belford. However, many out there need to be caught and tried for their crimes.
We have listed two scams out of the many booked under the law.
Starting in 2017, a Massachusetts-based registered ‘Family Endowment, Partners’ investment advisory firm, was spearheaded by its owner, Lee Dana Weiss. The federal Security, and Exchange Commission (SEC), filed a case against them in 2015. The charges faced by the firm and its employees were, among other irregularities, instructing clients to make particular investments while concealing the fact that Weiss would receive half of the earnings.
The SEC also charged the firm that clients were encouraged to invest $40 million in securities issued by firms from which Weiss had vested financial interests and got payments.
In another case, the Financial Industry Regulatory Authority (FINRA) announced that a former broker Richard Adams of Caldwell International Securities Corp., founded in 2000, would be barred from the security industry. The charges against him included numerous security violations and churning (an illegal activity where the broker trades to make a huge commission irrespective of whether the clients made a profit or loss). In addition, Richard Adams was involved in excessive trading in two customer accounts. According to FINRA, between July 2013 and June 2014, Richard Adams’ excessive trading in two customer accounts generated more than $57,000 in commission while costing the customers more than $37,000 in losses.
However, there are a few tell-tale signs that you can take to protect yourself from immoral brokers and other financial professionals:
Be on your toes if you receive an unsolicited call from a broker or an investment advisor from a firm with which you have never done any business. You can be contacted not only through a phone call but also through mail and emails. Avoid attending their investing seminars where free lunch or other gifts are promised; they only want to lower your guard before you commit yourself to investing blindly in their firm.
Be especially alert if the caller is using aggressive high-pressure sales tactics, touting “once in a lifetime opportunity” or when they flatly refuse to send the information of the investment for which they are pitching.
Ask many questions about the company and what kind of service you should expect.
As financial professionals, they should follow fiduciary standards where financial professionals keep the interest of the client above their own. They should provide for and protect clients’ best interests. If the broker or the financial advisor fails to answer a simple question or tries to keep you away from certain information, then don’t entertain these brokers or financial advisors.
Also, check what rates, fees, or commissions they are offering. You should get both parts of Form ADV from a registered investment advisor.
Although there are many checks and balances to check the legitimacy of a broker, it would be odd that a licensed broker is breaking the law. Nonetheless, a licensed broker may urge you to make an investment that benefits the broker or the firm rather than you as a client. They could also use the money in your accounts for their objectives, such as getting margin or bolstering their financial records.
Since forex scams are quite common, you can request your broker to provide their Retail Foregin Exchange Dealer (RFED) number. You can visit the National Futures Association or the Commodity Futures Trading Commission online and look for the broker or the firm’s name. Another method is to simply search the name of the broker or the firm on the internet. Since people who have been cheated rarely stay quiet, you will find posts, blogs, or even web pages scrutinizing the broker or the firm on their wrongdoings or if they are involved in some scam.
Brokers are known to steal money from their clients, which is a rare event. In addition, brokers are known to steer the investments that benefit them instead of you and may invest where they wouldn’t dare to. Thus they are gambling on your money for their benefit. Therefore you must check your statement often to find any irregularities in it.
Although the country might experience a recession, some shady brokers or firms will try to profit off your money. Broker and Forex scams run rampant through our society. Therefore, you must do thorough research before trusting your investment in some brokers or firms. Even after choosing the right broker or the firm, you must check your financial statements and check for any discrepancies. If the trade or the growth of the portfolio is not going as expected, or if the broker or the firm is reluctant to have a word with you or avoid your calls, then don’t hesitate to pull off your investments and lodge a complaint with the regulatory authorities and local law enforcement.