The Coronavirus (COVID-19) has wrecked the financial markets. Since February 20, as the world has raced to respond to this pandemic, the S&P 500 has dropped from 3,380 to 2,430 (approximately 28%) and the Dow Jones has dropped from approximately 29,300 to approximately 20,400 (more than 30%). This decline has rocked the value of investment accounts.
Any time there are stock market losses like there are now, investors should closely watch their investment accounts. There are a number of different investment frauds and schemes that happen (or are discovered) during declining markets.
First, the obvious is monitoring the decline in the value of the accounts. For many investors approaching retirement, the question becomes “what do I do?” Often, investors will hear their financial advisors use the old phrase “stay the course.” But, what is the course? COVID-19 is presenting challenges across the world. Of all the uncertainty in the news, there is one thing that seems certain: Nobody knows what the economic impact of COVID-19 will be. Therefore, staying the course could be riding a sinking ship to the bottom of the ocean. Financial advisors are required to manage client accounts in a suitable manner and make recommendations that are suitable for clients based on a variety of factors. If you are nearing retirement and your financial advisor is telling you to stay the course despite losing tens or hundreds of thousands of dollars (or more), ask questions or get help from a securities fraud attorney.
Second, when the value of accounts drops considerably, financial advisors also suffer a decline in commissions and fees. As a result, they often resort to unfair trade practices, such as excessive trading, manipulating accounts by trading on commissions rather than in fee based accounts, or buying and selling high commission investments. Financial advisors will also open “new” accounts and trade in those accounts to generate commissions to offset their losses in revenue. Investors can protect themselves by keeping an eye on the activity in their accounts. If you see strange activity in your accounts during a market downturn, ask questions or get help from a securities attorney. Also, if you see trade confirmations for “new” accounts or transfers from your existing accounts to account numbers that you do not recognize, ask questions or get help from an investment fraud attorney.
Third, significant market downturns also often reveal Ponzi schemes. When the market has a big drop, many investors look to sell investments (to avoid further losses) or have to sell investments in order to generate cash payments. Ponzi schemes are often discovered when investors seek cash and the bad investments do not have the cash to pay out. In these situations, the Ponzi schemes will come up with a variety of seemingly good excuses as to why they cannot make distributions. If you try to sell shares or make withdrawals from a fund, investment, or account, and are told the fund, account, or investment is freezing distributions, cannot make a distribution, or your financial advisor makes excuses as to why you cannot (or should not) sell shares in an investment or take a distribution from an investment, you should speak with a securities attorney.
The Kueser Law Firm represents clients in various types of securities fraud cases. If you have questions about your investments, your investment accounts, or your financial advisor, contact our securities lawyer, Jason Kueser, at (816) 374-5865.