3 Types of Mutual Fund Fraud & Trickery

Representing Investors Nationwide

Stockbroker shows investment options for mutual funds based on fraudMany investors think they can avoid stock market fraud by purchasing mutual funds instead, but it’s essential to understand the reasoning behind your broker’s advice for one mutual fund over the other. Mutual funds pool monies from investors to purchase stocks and other assets including bonds. Owning a diversified mutual fund is ideal and less risky than having a stake in a single stock or multiple stocks in one industry. However, no area of investment is perfect and risk-free. Brokers, firms, and advisors often engage in illegal or unethical tactics to persuade investors.

Having full transparency in your assets is crucial. You can’t avoid a financial loss if you’re unaware of the risks, and many investment advisors withhold or gloss over the details of certain mutual funds for personal gain. Our Orlando attorneys have helped many victims recover millions in damages in mutual fund fraud settlements.

Some of the common forms of mutual fund fraud include:

1.    Mischaracterizing Types of Investments for Mutual Funds

The goal is to diversify your investments, which is easier done with mutual funds, but your finances may be in jeopardy if the broker failed to notify you that the mutual fund was heavily invested in the mortgage industry or another single sector. Mutual funds with assets in the same industry or subset come with a high risk. Even those who own several forms of mutual funds find that there’s less diversification than they were initially led to believe.

2.    Advisors or Brokerage Firms May Put Commissions Over Your Best Interests

When you choose a broker or investment advisor, you need to recognize that their advice for certain mutual funds could be due to an incentive or higher-than-average commission. This kickback is a conflict of interest and can be considered mutual fund fraud because if investors knew of the payment for the recommendation, they would likely look elsewhere for advice or to a lower-cost fund. Brokers may also engage in “churning” mutual funds to generate more commissions and fees, which can be considered an unauthorized transaction if you were unaware. Mutual funds should not be bought and sold short.

3.    Alternative, Concentrated Mutual Funds Come with Higher Risks

Investment types ebb and flow and the recent trend of investing in concentrated funds outside of traditional mutual funds come with an atypical high risk. The promise to ride the market’s ups and downs, hoping to capitalize on any rise or drop puts you at risk. These alternative mutual funds have potentially volatile assets that could lead to substantial losses such as currencies, concentrated positions, and future contracts. Additionally, actively-managed and undiversified mutual funds fail in comparison to the growth of other more traditional options.

Contact Our Mutual Fund Fraud Attorneys in Orlando

If you’ve noticed excessive mutual fund charges, unauthorized changes, or followed an unethical recommendation from your broker, out attorneys in Orlando can help determine if you’ve been a victim of mutual fund fraud and hold the stockbroker or firm responsible. Contact Colling Gilbert Wright & Carter today at (407) 712-7300 for a free consultation.