When investors are coerced to make a purchase or sale by an unscrupulous party who used false information, it is called stock, investment or securities fraud. These fraudulent purchases can result in financial loses for the victim and are against the law. There were 1,639 cases of securities and commodities fraud in 2014, say litigation attorneys.
There are always a lot of scams that would be investors need to be careful to avoid. CNBC’s American Greedandnbsp;series is reporting on new scams in the real estate market.
The National Association of Realtors (NAR) has reported that prices for real estate are up by about 10% from this time last year. They also note that as the prices are going up, the number of properties that are available are going down. This is giving many people the idea that this is a good time to invest in real estate. Litigation attorneys and the business network recommend would be investors revisit what happened in this sector about ten years ago.
Today’s real estate market looks a lot like the real estate market in 2006 and 2007. Then too, prices were high and inventory was low. It seemed like the stock market could not go anywhere but up. This is when a former police officer, John Bravata started BBC Equities. Investors who wanted to move from the stock market to something they thought would be more secure, they were getting close to their retirement time, looked to BBC Equities and bought shares in its real estate investment fund. Bravata himself ran a series of investment seminars where he told attendees there was no risk investing with him.
Bravata told his seminar attendees, “I gotta tell you that, and this is a bold statement, but we’ll back it up, not one of our clients ever lost a dollar.” He claimed the returns people would receive would be in the doubt digit range. He went on to say that his firm bought certificates of investment, which are federally insured, and leveraged real estate purchases with them. That was his claim.
What Bravata was really doing was running a Ponzi scheme. In a Ponzi or pyramid scheme, the first investor is considered to be at the top of the pyramid. New investors are recruited to pay the original investor. More investors are brought in to pay the second group and the a third group is brought in to pay the second tier. Investments into the BBC Equities were going to pay people who had invested earlier and to Bravata himself. His scam exploded along with the hosing market in 2008. Many of his investors lost everything. Litigation attorneys say he is now in prison and will be there for decades.
Jenice Malecki, a securities fraud attorney in New York, says, “A lot of scams happen when the market is high. Investors will believe that this person knows what they’re talking about because the market is high, and they’re in it, and they appear to be doing well.”
Malecki says that people have to be more than just careful to avoid being taken by this kind of scam. She says that people have to get as much documentation as they can about a deal before they consider making any kind of investment, especially real estate investments.
Malecki said, “You have to ask yourself who is behind the investment and how it is secured. A lot of times investors will suspend disbelief and not use the tools that they know are there. They don’t think about the location of the property, the identification of the property, and the security interest involved.”
It is important for would be investors to put as much work into making real estate investments as they put into buying actual property. Malecki says, “If somebody was going to spend hundreds of thousands of dollars on a home, they would engage a lawyer to make sure that the contract was appropriate and that their interests were properly represented. But yet, when it comes to an investment, somehow they try to skip a step.”
It is very important to talk to a business attorney or financial advisor attorney before so you do not end up needing litigation attorneys after.