Securities Fraud
Investment fraud, including securities fraud, costs Americans billions annually, with reported investment scam losses exceeding $6 billion in recent years according to the FBI. If you suspect your broker, financial advisor, or investment firm has engaged in fraudulent conduct, a securities fraud attorney can help you understand your rights and pursue the compensation you deserve.
At Varnavides Law, we represent investors throughout California and nationwide who have suffered financial losses due to broker misconduct, investment fraud, and securities violations. Our founder, Gary Varnavides, spent 10 years at a prominent securities defense firm representing broker-dealers, giving him unique insight into the tactics these firms use to defend against investor claims.
Key Takeaways
- Securities fraud includes misrepresentation, unauthorized trading, churning, Ponzi schemes, and other deceptive practices that cause investor losses
- FINRA arbitration resolves most broker disputes, with 84% of customer cases resulting in settlements or paid damages in 2024
- Time limits apply: You have 6 years to file a FINRA claim, but state statutes of limitations may be shorter
- No upfront fees: Most securities fraud cases are handled on contingency, meaning you pay nothing unless we recover money for you
- Insider knowledge matters: An attorney who understands defense tactics can build stronger claims for investors
What is Securities Fraud?
Securities fraud occurs when a person or entity intentionally provides false information, omits material facts, or engages in deceptive practices that influence investor decisions. This type of investment fraud violates federal and state securities laws designed to protect investors and maintain market integrity.
The Securities and Exchange Commission (SEC) defines securities fraud broadly to include any manipulative or deceptive device used in connection with the purchase or sale of securities. In fiscal year 2024, the SEC obtained $8.2 billion in financial remedies through enforcement actions, including $6.1 billion in disgorgement, the highest amount on record.
Common examples of securities fraud include:
- Making false or misleading statements about an investment opportunity
- Omitting important information that would affect an investor’s decision
- Manipulating stock prices through artificial trading
- Trading on material non-public information (insider trading)
- Operating fraudulent investment schemes that use new investor money to pay earlier investors
Common Types of Securities Fraud
Securities fraud takes many forms, from sophisticated corporate schemes to individual broker misconduct. Understanding these different types helps investors recognize when they may have a claim.
Ponzi Schemes
Fraudulent investment operations that pay returns to earlier investors using capital from newer investors, rather than from legitimate business profits. According to Investor.gov, the largest Ponzi scheme in history, operated by Bernard Madoff, caused an estimated $64.8 billion in losses.
Churning
Excessive trading in a client’s account primarily to generate commissions for the broker rather than to benefit the investor. Churning often involves high turnover rates and unusually large commission fees relative to account value.
Unauthorized Trading
Executing trades in a client’s account without proper authorization. Unauthorized trading is a serious violation of securities regulations and can result in significant financial harm to investors.
Pump and Dump Schemes
Artificially inflating the price of a stock through false or misleading statements, then selling shares at the inflated price before it crashes. These schemes commonly target thinly traded penny stocks and generate approximately $6 billion in losses annually.
Insider Trading
Trading securities based on material, non-public information. Both corporate insiders who trade on confidential information and those who receive tips from insiders can face civil and criminal liability.
Broker Embezzlement
Direct theft of client funds through unauthorized transfers, check forgery, or fictitious securities sales. This form of stockbroker misconduct often involves falsifying account statements to conceal the theft.
Misrepresentation and Unsuitable Investments
Beyond outright fraud, brokers and financial advisors may engage in misconduct that violates their fiduciary duty to clients:
- Material misrepresentation: Making false statements about an investment’s risks, returns, or characteristics
- Unsuitable recommendations: Recommending investments that do not align with the client’s risk tolerance, investment objectives, or financial situation
- Failure to disclose: Omitting important information about conflicts of interest, fees, or investment risks
- Breach of fiduciary duty: Putting the broker’s financial interests ahead of the client’s best interests
Important: If you discover unauthorized trades or suspicious activity in your account, report it immediately. Failure to promptly object may allow the brokerage firm to argue that you ratified the transactions.
Warning Signs of Securities Fraud
Recognizing the red flags of securities fraud early can help protect your investments. A securities fraud attorney can review your situation if you observe any of these warning signs:
Account Red Flags
- Trades you did not authorize appearing on statements
- Account values declining despite market gains
- Unusually high commission fees or transaction costs
- Missing or altered account statements
- Difficulty accessing your funds or account information
- Frequent changes in investment positions without explanation
Advisor Red Flags
- Promises of guaranteed or unusually high returns
- Pressure to invest quickly before you can research
- Complex strategies that are difficult to understand
- Resistance to providing documentation or statements
- Unlicensed or unregistered investment professionals
- Recommendations that seem inconsistent with your goals
Verify your broker’s credentials: Use FINRA BrokerCheck to research your broker or financial advisor’s background, including any customer complaints, regulatory actions, or disciplinary history.
Why You Need a Securities Fraud Attorney
Securities fraud cases involve complex regulations, sophisticated defendants, and significant procedural requirements. An experienced securities fraud lawyer provides several critical advantages:
Understanding Complex Securities Laws
Federal securities laws including the Securities Act of 1933, the Securities Exchange Act of 1934, and Rule 10b-5 create intricate frameworks for investor protection. State blue sky laws add another layer of regulation. A securities fraud attorney understands these overlapping legal frameworks and can identify all applicable causes of action for your claim.
Navigating FINRA Arbitration
Most disputes between investors and brokers are resolved through FINRA arbitration rather than court litigation. In 2024, FINRA handled approximately 2,469 arbitration cases, with 62% involving customer claims against broker-dealers. The arbitration process has specific procedural requirements, discovery rules, and hearing procedures that differ significantly from court litigation.
Building a Strong Case
Proving securities fraud requires demonstrating that the defendant made material misrepresentations or omissions, acted with scienter (intent to deceive), and caused your financial losses. An attorney experienced in investment fraud cases knows how to gather evidence, retain expert witnesses, and present compelling arguments to arbitrators or courts.
Leveling the Playing Field
Brokerage firms and financial institutions have significant resources to defend against investor claims. They employ experienced defense attorneys who specialize in minimizing liability. Having your own securities fraud attorney ensures you have knowledgeable representation fighting for your interests.
The FINRA Arbitration Process
The Financial Industry Regulatory Authority (FINRA) operates the largest forum for resolving disputes between investors and broker-dealers. Understanding this process is essential for pursuing your securities fraud claim.
| Stage | Description | Typical Timeline |
|---|---|---|
| Statement of Claim | File detailed written claim with FINRA describing the misconduct and damages sought | Initial filing |
| Response | Respondent firm files answer to claims and any counterclaims | 45 days after claim |
| Arbitrator Selection | Parties rank and strike potential arbitrators from lists provided by FINRA | 60-90 days |
| Discovery | Exchange of documents, account records, and other evidence between parties | 3-6 months |
| Pre-hearing Conferences | Administrative hearings to resolve procedural matters and set hearing dates | Ongoing |
| Arbitration Hearing | Presentation of evidence and testimony before arbitration panel | 1-5 days typically |
| Award | Panel issues written decision, usually within 30 days of hearing close | 30 days post-hearing |
FINRA Arbitration Statistics
Recent FINRA data shows favorable outcomes for investors who pursue claims:
- 84% of customer cases closed through settlement or paid damages in 2024
- 69% of cases result in settlements reached by the parties
- Average case duration improved to 12.5 months in 2024, down from 14.6 months in 2023
- Settlement recovery typically ranges from 40% to 80% of claimed losses
Damages You Can Recover
Victims of securities fraud may be entitled to recover several types of damages:
Compensatory Damages
- Out-of-pocket losses: The difference between what you paid and what the investment was actually worth
- Lost profits: Gains you would have earned on appropriate investments
- Interest: Prejudgment interest on your losses from the date of the fraud
- Costs: Expert witness fees, filing fees, and other litigation expenses
Additional Remedies
- Rescission: Cancellation of the fraudulent transaction and return of your investment
- Attorneys’ fees: Recovery of legal costs in some cases
- Punitive damages: Additional damages to punish particularly egregious conduct
- Disgorgement: Return of ill-gotten gains by the wrongdoer
Statute of Limitations for Securities Fraud Claims
Time limits for filing securities fraud claims vary depending on the legal theory and forum. Acting quickly preserves your ability to recover losses.
| Claim Type | Time Limit | Notes |
|---|---|---|
| FINRA Arbitration | 6 years | From occurrence or event giving rise to the claim (FINRA Rule 12206) |
| Federal Securities Law (10b-5) | 2 years / 5 years | 2 years from discovery, no more than 5 years from violation |
| California Securities Law | 2 years / 5 years | 2 years from discovery or 5 years from act, whichever expires first |
| California Fraud Claims | 3 years | From discovery of the fraud |
Do not delay: While FINRA allows claims up to 6 years from the occurrence, state statutes of limitations may bar your claim sooner. A California securities fraud claim, for example, may be time-barred after just 3 years even if FINRA arbitration remains available.
Why Choose Varnavides Law as Your Securities Fraud Attorney
Varnavides Law provides aggressive, knowledgeable representation for investors who have been victimized by securities fraud. Our approach delivers distinct advantages:
Insider Perspective from Defending Broker-Dealers
Before founding Varnavides Law, Gary Varnavides spent 10 years at Sichenzia Ross Ference LLP defending broker-dealers against investor claims. This experience provides invaluable insight into the strategies brokerage firms use to minimize liability and defeat investor claims. We use this knowledge to anticipate defenses and build stronger cases for our clients.
Recognized Excellence in Securities Law
Gary Varnavides has been named a Super Lawyers Rising Star from 2015 through 2023, a distinction awarded to only 2.5% of attorneys in the New York metro area. This recognition reflects our commitment to exceptional client service and successful outcomes in securities law matters.
Multi-State Licensing
We are licensed to practice in California, New York, and New Jersey, allowing us to represent investors across multiple jurisdictions. Our Los Angeles office serves clients throughout Southern California while our nationwide FINRA arbitration practice extends our reach to investors anywhere in the country.
Personalized Attention
Unlike large firms where your case may be handed off to junior associates, Varnavides Law provides direct attorney involvement throughout your case. You will work directly with experienced counsel who understands the complexities of your securities fraud claim.
Fee Structure for Securities Fraud Cases
We handle most securities fraud cases on a contingency fee basis:
- No upfront attorney fees: You pay nothing to start your case
- We only get paid if we recover money for you: Our fee is a percentage of your recovery
- Fee percentage discussed during your free consultation: We will explain our fee arrangement clearly before you decide to proceed
You remain responsible for case costs, which may include filing fees, expert witnesses, and deposition transcripts. We can discuss cost estimates and payment arrangements during your consultation.
Frequently Asked Questions
What qualifies as securities fraud?
Securities fraud includes any intentional deception, misrepresentation, or omission of material facts in connection with securities transactions. Common examples include Ponzi schemes, churning (excessive trading), unauthorized trading, pump and dump schemes, insider trading, and broker embezzlement. The key element is that the wrongdoer acted intentionally or recklessly to deceive investors for financial gain.
How do I know if I have a securities fraud case?
You may have a case if you suffered investment losses due to your broker’s or advisor’s misconduct. Warning signs include unauthorized trades, investments that did not match your risk profile, excessive fees or commissions, false statements about investment risks or returns, and difficulty accessing your account or funds. A securities fraud attorney can review your account statements and trading history to determine whether you have viable claims.
What is the difference between FINRA arbitration and a court lawsuit?
FINRA arbitration is a private dispute resolution process required by most brokerage account agreements. It is generally faster (averaging 12.5 months) and less formal than court litigation. Decisions are made by a panel of arbitrators rather than a judge or jury, and there are limited appeal rights. Court lawsuits may be available for certain claims against parties not subject to FINRA jurisdiction, such as investment advisers not affiliated with broker-dealers.
How long do I have to file a securities fraud claim?
Time limits vary by claim type. FINRA arbitration must be filed within 6 years of the occurrence. Federal securities claims under Rule 10b-5 have a 2-year statute of limitations from discovery, with a 5-year outer limit. California state law claims may have 2-3 year limitations periods. Because these deadlines can overlap and interact in complex ways, you should consult a securities fraud attorney as soon as you suspect misconduct.
What damages can I recover in a securities fraud case?
Investors may recover compensatory damages including out-of-pocket losses, lost profits, and prejudgment interest. In some cases, you may also recover attorneys’ fees, costs, and punitive damages. The specific damages available depend on the type of claim, the evidence of wrongdoing, and the forum where your case is heard. Most FINRA settlements result in recovery of 40% to 80% of claimed losses.
Do I need to pay upfront to hire a securities fraud attorney?
Most securities fraud attorneys, including Varnavides Law, handle these cases on a contingency fee basis. This means you pay no attorney fees unless we successfully recover money for you. This arrangement allows investors to pursue legitimate claims regardless of their financial resources. During your free consultation, we will explain our fee structure and any case costs you may be responsible for.
Can I recover losses from market declines?
Market losses alone are not recoverable in securities fraud cases. However, if your losses resulted from unsuitable investment recommendations, undisclosed risks, excessive trading, or other broker misconduct, you may be entitled to compensation. The analysis focuses on whether your broker or advisor acted improperly, not simply whether your investments lost value.
What should I do if I suspect my broker committed fraud?
First, document everything by gathering account statements, trade confirmations, and any communications with your broker. Do not confront your broker or make accusations that could prompt them to destroy evidence. Check your broker’s background on FINRA BrokerCheck. Then consult a securities fraud attorney to evaluate your claims and discuss your options for recovery.
Contact a Securities Fraud Attorney Today
If you have suffered investment losses due to broker misconduct, misrepresentation, or other securities fraud, time is critical. Statutes of limitations can bar your claims if you wait too long to take action. The sooner you consult a securities fraud attorney, the better your chances of recovering your losses.
Schedule Your Free Consultation
We offer free, confidential consultations to evaluate your potential securities fraud claim. There is no obligation, and you will speak directly with an experienced attorney who can assess your situation and explain your legal options.
Varnavides Law represents investors in Los Angeles, throughout California, and nationwide in FINRA arbitration proceedings. Let our insider knowledge of brokerage firm defense tactics work for you.
