FINRA Study Indicates that Retail Securities Fraud is Pervasive
A survey sponsored by the FINRA Investor Education Foundation reports that over 80% of respondents were solicited to participate in a fraudulent securities offering, 16% invested, and 11% lost money. The survey questioned respondents about specific frauds such as lottery scams, penny stocks, boiler room calls, pyramid schemes, free lunch seminars, and Nigerian emails. The survey also indicates that most people cannot spot red flags such as claims of guaranteed or outsized returns. The survey also shows that people generally don’t report fraud because either they don’t think the reporting will have an effect or they’re embarrassed. According to the report: “Findings from this study suggest that effective fraud prevention must be broad in scope, fighting fraud at its sources while equipping all citizens with the capability to recognize red flags.”
OUR TAKE: This type of study should encourage regulators to spend their resources fighting retail securities fraud. While this may not be as exciting as suing investment banks, retail investors are vulnerable and need protection. We are simply blaming the victims if we are going to criticize consumers for not being able to spot the fraud red flags or failing to report.