Excessive Compensation Often Leads to Fraud
As one colleague recently pointed out, as a general matter, the investment products that are most prone to fraud, are the same investment products that offer the highest compensation.
Variable annuities may offer compensation in excess of 6-7% of a customer’s initial investment. Non-traded Real Estate Investment Trusts offer may compensation in excess of 12% of a customer’s initial investment. Municipal bonds and corporate debt securities can be sold as principal, and notwithstanding a spread between the bid and what a seller is paid, and the offer, what a buyer is charged, current rules allow for the undisclosed mark-up of these transactions.
The same is true of Unit Investment Trusts, which may be inventoried and sold as principal, once again with undisclosed mark-ups of as much as 5%. Moreover, these same securities can be bought and sold with astounding frequency.
Similarly, structured products, including exchange linked notes, reverse convertible notes, and bond funds are frequently the investment products most associated with misconduct, because once again, in addition to the relatively larger commissions associated with the sale of these products by the broker, the brokerage firm generally earns significant compensation, and even significant on-going compensation in connection with the underwriting and affiliated management of these investments.
A list of the securities or investment products we see most often include:
- Alternative Mutual Funds
- Complex Derivative Products
- Equity Linked Notes
- Hedge Funds
- High Yield Bond Funds
- Inverse Leveraged ETF Funds
- Municipal Bond Funds
- Municipal Bonds
- Mutual Fund Fraud
- Ponzi Schemes
- Real Estate Investment Trusts (REITs)
- Retail Bank Customer Referrals
- Reverse Convertible Securities
- Penny Stocks – Low Priced Securities
- Structured Products
- Ultra-Short Bond Funds
- Variable Annuities
Guiliano Law Group
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AboutNicholas J. Guiliano
Nicholas J. Guiliano has more than 25 years of securities related experience, and has represented more than 1,000 public customers in claims against brokerage firms for fraud in connection with the sale of securities principally in arbitration before the Financial Industry Regulatory Authority (“FINRA”) Dispute Resolution, Inc. (formerly known as The National Association of Securities Dealers (“NASD”) Dispute Resolution, and the New York Stock Exchange (“NYSE”) Department of Arbitration.LEARN MORE