Investment Fraud
Video Transcript
The type of fraud we typically deal with: Unsuitable Investments • Fraudulent Activity: Recommending investments that are inconsistent with the client’s financial goals, risk tolerance, or time horizon. 📌Negligence or Breach of Fiduciary Duty • Fraudulent Activity: Fund managers or advisors fail to act in the best interests of their clients, leading to underperformance. • Example: Managing a portfolio poorly by not diversifying or by making consistently bad investment decisions. 📌Index Hugging with Active Fees • Fraudulent Activity: Selling a fund as actively managed while essentially mirroring an index like the S&P 500 but underperforming due to high fees. • Example: A “closet index fund” charges active management fees despite offering returns worse than the index it’s supposed to outperform. 📌Affinity Fraud • Definition: Fraud that targets members of identifiable groups such as religious or ethnic communities. • Red Flags: Trust built on shared backgrounds; few verifiable details about the investment. Relies on the concept that investment professionals can create cost-effective, tax-advantaged pairs investments by using techniques such as –