Investors who fall victim to investment fraud could face significant financial loss. Litigation provides recourse to investment fraud victims, but often shareholders and investors do not detect problems with the company they have invested in until the company is bankrupt or in serious financial trouble. A bankrupt company has limited or no assets to pay out to compensate shareholders for investor fraud.
Detecting red flags early on when a company is committing investor fraud is key to preserving and protecting financial investments. Unfortunately, News Wise reports that the majority of investors who are vigilant about looking for signs of corporate fraud track the wrong metrics. Those who are looking for fraud indicators may identify warning signs only after it is already too late to protect an investment and avoid loss. As soon as warning signs are detected and possible investment fraud identified, those who stand to face losses should contact a NY investment fraud litigation lawyer for assistance in using the civil justice system to seek compensation.
Recognizing Investment Fraud
Researchers conducted a survey if 194 experienced non-professional investors who lived across 38 states in the U.S. These investors were asked about their investment activities, the research they do, and the manner in which they work to identify fraud. Specifically, investors were asked if they look for any warning signs and what specific red flags they watch for when seeking to identify fraud in an investment.
Factors that investors look for include things like SEC investigations and shareholder lawsuits. However, by the time the SEC becomes involved or a suit has already occurred, the majority of more sophisticated investors will have caught earlier warning signs and sold their shares.
Some of the different red flags that more sophisticated investors tend to look for when trying to recognize investment fraud include high manager turnover; abnormally high revenue growth, and a change in the auditor of the company’s finances. Investors who track early warning signs were found to have higher returns on their investment portfolios than others in the study who focused on later warnings like SEC investigations or litigation.
As many as 25 percent of all respondents in the survey had experienced problems and lost money in the past as a result of investment fraud committed by companies they held shares in. These investors who had experienced previous fraud-related losses were found to be no more likely than the other experienced non-professional investors to recognize early warning signs of a possible problem with a company that has been invested in.
Every shareholder needs to be watchful for possible signs of investment fraud to protect their financial interests. In the eyes of the law, however, it is ultimately a corporations responsibility not to engage in dishonest behavior. A corporation or other business entity that publishes misleading disclosures or financial statements or that otherwise defrauds shareholders can find itself the defendant in an investment fraud or shareholder lawsuit.
Research revealed that most sophisticated non-professional investors have shares of stock in only five to 10 companies at a time. This means that investors who have a lot of money to invest could face significant financial losses if they have put a large chunk of their funds into a company engaging in fraudulent behavior. These investors can seek to recover damages if they can prove fraud occurred.
Investment fraud cases can be complicated and shareholders/ investors as well as organizations accused of fraud should both be represented by a qualified and experienced New York litigation lawyer. Call today to schedule a consultation with an attorney who can provide assistance with litigation arising from allegations of investment fraud.