Broken by a Broker? Find Out What to Do

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People feel they should trust their family, friends, and their broker. After all, a broker manages the money that can represent your future, whether it is a college fund for kids or retirement.

Unfortunately, there are many broker scams, and with investing on the internet, scams have grown. Fortunately, those who have lost money to broker scams can retrieve it with Trader Defense Advisory services. It is also important to do your due diligence before trading.

The pandemic has led to a significant uptick in complaints about investment fraud, and these broker scams are proliferating. The financial crisis and job insecurity have led to desperation to make money fast through trading rather than prudent investing. Unscrupulous parties have taken advantage of this trend to develop broker scams.

Types of Broker Scams

Broker scams often fall into one or several of the following patterns:

  1. Unregulated Broker

The first step when deciding to trade is to work with a regulated broker. This means not working with a broker without a license to trade in the area you are and inspecting licenses to ensure they are up to date.

If a broker has no license, there is little or no recourse to action if they steal your money. Regulatory bodies are charged with the responsibility of exacting penalties from licensees who take advantage of their clients. Unregulated brokers do not fall under their jurisdiction.

  1. Fake Trading Platforms

You may be impressed with a broker’s state-of-the-art trading platform. The broker may claim you can see your trades in real-time. This could be true, or in the case of a broker scam, this platform could be nothing more than a glorified video game, and no trading will take place at all.

  1. Pump and Dump Schemes

There is a good reason for brokers and even financial journalists to disclose what holdings they have before giving financial advice or making predictions. This is to avoid suspicion of pump and dump schemes.

A fake broker could own an undervalued asset, talk up the asset and pressure clients to buy it, and then sell it when it is at its high point, making all of the other traders’ investments worthless. This is one of the most insidious and common types of broker scams. Make sure your broker reveals his or her holdings before working with them.

  1. Ponzi Schemes

Ponzi schemes were made famous by Bernie Madoff who defrauded high-profile investors of millions for years until his crime was discovered in 2009. A Ponzi scheme is a  broker scam that is like a revolving door in which those wishing to withdraw money are paid with funds from new clients.

There is no investment going on at all, but money is simply going in and out and the broker collects commissions. The fake broker may claim the investment went bust when they don’t want to return the money or they can disappear behind other identities.

Is Your Broker a Scam Artist?

There are ways of telling before it is too late if your broker is pulling a scam. These can be red flags:

  • Unregulated broker
  • Lack of communication
  • Lack of information about investments
  • The broker only deals with one type of investment and it is high risk
  • The broker puts pressure to make trades when a client asks for a withdrawal
  • Unauthorized transactions
  • Refusal to allow a client to withdraw money
  • Slaps on unexpected fees

What If You Have Lost Money in a Broker Scam

If you can’t get your broker to withdraw your funds, you are most likely trapped in a broker scam. It is important to report the broker to the regulatory body that provided the license and work with a third party to track down the broker and retrieve your funds.

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