What Should You Do if Your Stock Broker Commits Investment Fraud

Many investors prefer to invest their funds through a stock broker rather than investing directly. This is especially true for new investors who do not have much knowledge about the share market and possess limited investment experience.

Whenever an investor authorizes a broker to invest on their behalf, a lot of trust is required. Most of the time, this trust is not regretted as the stock brokers are individuals who are registered with and regulated by the Stock and Exchange Board of India (SEBI). SEBI has set strict rules and regulations for stock brokers in India. If the stock brokers do not adhere to them, their license can be revoked and they can face heavy penalties.

However, in rare cases, stock brokers may commit investment fraud. In this blog post, we will explain to you what should be done if your stock broker commits an investment fraud.

What is an Investment Fraud?

An investment fraud is an illicit activity committed by a stockbroker or a financial services professional with the intent to deceive their clients for the purpose of making money. An investment fraud specifically conducted by a stock broker may also be known as stockbroker fraud.

Some common examples of investment fraud are:

• Unauthorized trading;
• Misrepresentation/omission of material facts;
• Excessive trading, lack of diversification;
• Unsuitable investment recommendations;
• Failure to disclose a personal conflict/interest;
• Negligent portfolio management;
• Front running of transactions;
• Insider trading.

How to Tell Whether You’re a Victim of Investment Fraud?

The stock market can be pretty volatile, and you cannot claim that your stock broker committed an investment fraud just because they gave you some investment tips that unfortunately didn’t help you generate money. You must realize that a stock broker doesn’t control the stock market. The stock market is controlled by factors like inflation, demand and supply, political scenario, civil wars, market sentiment, etc. You cannot blame your stock broker for any losses incurred due to these factors.

However, if the loss in your investment account was incurred due to fraudulent investment advice, it may be considered an investment fraud. For instance, if your stock broker claims to be 100% sure that a company’s stock will rise, and it fails to do so, it will be considered an investment fraud.

Similarly, if they claim they have learnt about insider information regarding a company, and guarantee that you will make good money out of it, which you eventually do so, it will also be considered an investment fraud. It isn’t an investment fraud only if you lose your money. Making money in a wrongful manner through insider trading is also an investment fraud.

Here are some common signs of an investment fraud:

• The stockbroker claims to provide guaranteed returns or promises high returns with no risk.
• High pressure sales tactics.
• No paperwork or written details of the investment are available online.
• The stockbroker refuses to give details about their SEBI stockbroker license.
• Unusual or unexplained account withdrawals or other major investment changes without permission from client.

As a thumb rule, you should never fall for anything that seems too good to be true. One way to check whether your stock broker is genuine is to look up their company on the official SEBI website. If their company’s name isn’t present on the official portal of SEBI, then there is definitely something suspicious.

If their company’s name is present on the portal, you can mail them and ask them to confirm whether the stock broker in question is their employee. If they refuse such a stock broker has been working for them, then you should file a complaint against them for committing investment fraud.

How to File a Complaint against Investment Fraud?

If you’re sure you are a victim of investment fraud, you should definitely not ignore it. You must file a complaint against the stockbroker to seek compensation and prevent others from getting deceived.

If the investment fraud has been committed by a stock broker who is working for a company, you must first file a complaint against them with the company before reaching out to SEBI. However, if the stock broker is an independent individual and not working for any company or running their own firm, you can directly file a complaint against them with SEBI.

SCORES (SEBI Complaints Redress System) is a designated portal for filing complaints against stockbrokers in India. You can file a complaint with SCORES by visiting their website or downloading their app.

To file a complaint, you will need to create an account, and log on to it. Thereafter, you must navigate to lodge the complaint section. After this, you must select the entity against which you are filing the complaint and provide all the necessary details in your complaint. You must also attach any necessary documents which can be used as evidence against the investment fraud.

Conclusion

Frauds related to investments aren’t a new thing. Although SEBI has released strict guidelines to prevent investment fraud, some stockbrokers and financial services professionals may still violate them and commit fraudulent activities to generate illicit funds. If you feel like your stockbroker has tricked you into investing in a fraudulent scheme, you can file a complaint against them with SEBI by visiting the SCORES portal.

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