Misrepresentations and Omissions – Investment Fraud 

Misrepresentations and omissions refer to deceptive practices in investment offerings where important information about the investment is either misrepresented or withheld from potential investors. This can include false statements about the investment’s potential returns, risks involved, or the background of the individuals promoting the investment.

Omissions occur when crucial details that could affect an investor’s decision are not disclosed. Misrepresentations and omissions are common tactics used in investment fraud schemes to lure investors into making uninformed decisions.

Broker-dealers and financial advisors must not give out materially false information, make misleading statements, or leave out facts that a reasonable investor would consider when making an investment decision. 

FINRA Rules for Brokers and Brokerage Firms – Misrepresentations and Omissions

The following rules require firms and representatives to disclose to a customer all material facts and material information. If, instead, they made a misrepresentation, or omitted relevant information about the investment, an investor may have a claim if the investor relied upon the information to make a decision to purchase, sell, or hold a security. 

FINRA Rule 2020 Use of Manipulative, Deceptive or Other Fraudulent Devices- prohibits members from effecting “any transaction in, or induce the purchase or sale of, any security by means of any manipulative, deceptive or other fraudulent device or contrivance.” 

For the misrepresentation or omission of information to be considered a fraud, separate from negligent misrepresentations, there must be scienter or intent or knowledge of wrongdoing. 

FINRA Rule 2210 Communications with the Public– requires registered representatives to give the full story behind an investment, not just highlighting the positive attributes. If an advisor makes omissions about an investment, such as the downside risks, that could be considered fraud. 

FINRA Rule 2010 Standards of Commercial Honor and Principles of Trade- says that broker-dealers must operate with the highest standards of commercial honor in their dealings with investors. 

Securities Exchange Act of 1934 (15 U.S.C. § 78a et seq.) and Rule 10b-5 says that a misrepresentation or omission of a fact is material if a reasonable investor might have considered the fact important in the making of the investment decision. 

Examples of Misrepresentation and Omissions 

We reported last week that the SEC charged Wisconsin financial advisor Tony Liddle with defrauding 13 clients of $1.9 million and also misrepresenting the risk of GWG bonds and other alternative investments, claiming those investments were not risky. GWG Holdings Inc., which sold $1.6 billion in bonds backed by life settlements filed for Chapter 11 bankruptcy protection last April. Investors still don’t know what the L bonds are valued at, if anything. 

We previously reported that GPB Capital Holdings, a New York-based registered investment adviser, was accused of a massive “Ponzi-like scheme” that allegedly defrauded 17,000 investors across the U.S. out of more than $1.7 billion.  According to FINRA, on April 27, 2018, GPB Capital sent a letter to many broker-dealers that sold GPB Capital-offerings. The letters allegedly state that GPB Capital was in the process of registering certain classes of securities issued as limited partnerships with the SEC.

As part of that process, these offerings were required to file audited financial statements. The letters further stated that the delivery of these audited financial statements would be delayed pending the completion of a forensic audit.    According to the findings, while these firm learned of the delays, its registered representatives purportedly recommended and sold GPB Capital securities to numerous customers that were unsuitable in light of the customers’ investment profiles. Despite the announcement, many sales were reviewed and approved by firm principals.  These firms were sanctioned, fined and ordered to pay restitution to investors for the misrepresentation and omissions. 

Another example of misrepresentations and omissions, in December 2022 we reported financial advisor and insurance rep Gautam Arora (CRD#: 5443201), was reportedly arrested in California after an investigation by the state’s Department of Insurance found he allegedly sold $100,000 of fraudulent investments to four victims. 

Arora reportedly recruited individuals to work for him in a multi-level marketing agency, according to the statement. “He obtained victims’ private financial information through an alleged ‘financial review,’ then solicited victims to invest in his fictitious investments.” Arora allegedly made numerous material misrepresentations of fact and allegedly failed to disclose to clients his poor personal financial status. The California Department of Insurance, which alleged that Arora had overdrawn bank accounts and high credit card debt, stated that the victims were led to believe that their investments were “legitimate.” 

National FINRA Attorneys 

FINRA operates the largest securities dispute resolution forum in the United States, and has extensive experience in providing a fair, efficient and effective venue to handle a securities-related dispute.     

If you believe that you have been a victim of misrepresentation or omissions of information by your financial advisor, don’t wait to take action.  Please call the White Law Group at 888-637-5510 for a free consultation with a national FINRA attorney. 

The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm dedicated to the representation of investors in FINRA arbitration claims against brokerage firms throughout the United States.   

Our FINRA arbitration attorneys have handled over 700 FINRA arbitration claims involving unauthorized trading, unsuitable investments, fraud, negligence, churning/excessive trading, and improper use of margin.   

For information on The White Law Group and its representation of investors in claims against brokerage firms, visit https://whitesecuritieslaw.com. 

 

Tags: FINRA arbitration, FINRA attorney, FINRA Rule 2010, FINRA Rule 2020, finra rule 2210, FINRA  misrepresentation, Gautam Arora, GPB Capital, GWG holdings, omissions, securities attorneys Last modified: March 6, 2024