Pennsylvania securities fraud lawyers work with investors who have suffered losses due to a broker’s fraud or misconduct. Kurta Law can help you hold brokerage firms accountable if you are the victim of securities fraud.
Who Regulates Pennsylvania Securities?
The Pennsylvania Department of Banking and Securities (DoBs) oversees the registration of broker representatives and securities.
Pennsylvania Investor Education
The Pennsylvania DoBs has published material on investor education, including “How to Spot a Fraudulent Investment Scheme.”
It includes the following advice for investors:
- Beware of limited-time offers. Fraudsters use a “now or never” sales pitch to encourage investors to hand over money without carefully evaluating the risks.
- Watch out for claims of high profits that come with little risk. The chance of a big profit always indicates higher risk.
- Be sure to understand your investment. DoBs recommends investors discuss potential investments with a trusted financial professional.
If you believe a financial professional offered you poor advice, consider getting in touch with a Pennsylvania securities fraud lawyer.
Questions to Ask Before Investing
The Pennsylvania DoBS recommends that investors ask their financial professionals the following questions, especially if they are being solicited for an investment. (You can read the complete list of suggested questions here.)
- “Are you registered with the Pennsylvania Department of Banking Securities?”
- “Is this investment traded daily on a regulated exchange?”
- “What are the commissions and fees you and your company will make during the entire time of my investment?”
- “How long will the advertised rate of return last?”
- “Will you send me a prospectus or offering materials in the mail?”
Pennsylvania Investment Fraud Laws
Like most states, Pennsylvania has adopted state securities laws that echo federal securities laws. These are known in the securities industry as “Blue Sky Laws.” The 1973 Act 284 states that the following constitutes securities fraud:
(a) To employ any device, scheme or artifice to defraud;
(b) To make any untrue statement of a material fact or to
omit to state a material fact necessary in order to make the
statements made, in the light of the circumstances under which
they are made, not misleading; or
(c) To engage in any act, practice or course of business
which operates or would operate as a fraud or deceit upon any
person.
Pennsylvania Department of Banking Enforcement Actions
State enforcement agencies are often quicker to act than federal regulators. The following are examples of recent cases where the State of Pennsylvania imposed fines or revoked licenses in order to protect Pennysylvania investors.
$300,000 Edward Jones Fine for Failing to Register
Pennsylvania has issued several fines to brokerage firm Edward Jones for failing to register its investment advisers in Pennsylvania. The state has also alleged that Edward Jones failed to supervise its agent who violated the Pennsylvania Securities Act. For its failures to register representatives, Pennsylvania fined Edward Jones $300,000.
$200,000 Broker Fine for Allegedly Unsuitable Recommendations
In July 2017, a broker entered into a Consent Agreement & Order with Pennsylvania, consenting to the findings that he recommended an unsuitable investment to a customer. Pennsylvania imposed a fine of $200,000. FINRA finally suspended the broker in 2023 following allegations that he had failed to comply with making payments for an arbitration award.
$20,000 Fine for Keystone Investment Advisers
In February 2024, Keystone Investment Advisers entered into a Consent Agreement and Order with Pennsylvania. This type of order allows the firm to consent to findings without admitting or denying the findings. In this Order, the firm consented to the findings that the firm violated the Pennsylvania Securities Act by failing to enforce written supervisory procedures regarding the sale of leveraged Exchange-Traded Funds.
As part of the terms of the Consent Order, Keystone Investment Advisers agreed to pay a fine of $20,000.
Fines for Failing to Register as a Broker or Investment Advisor
Pennsylvania also doles out significant fines for offering advisory services in Pennsylvania without registering with the state.
Department of Banking 2023 Examination
Every year, regulators may announce what they will particularly look for in their examinations of securities recommendations. These examinations typically signal areas of special concern and may give investors clues as to what type of securities fraud is on the rise.
- In 2023, the Pennsylvania DoBS announced that the regulator would scrutinize brokers’ recommendations to purchase investments in digital assets, which would include many types of crypto coins and crypto tokens. Specifically, the Bureau will review the transactions for suitability, to ensure that these recommendations are not outside of investors’ risk tolerances. The regulator will also be looking to ensure that brokers perform their due diligence before recommending digital assets.
- The Pennsylvania DoBs also announced it would focus on the recommendation of leveraged and inverse exchange-traded funds (ETFs). ETFs pool investor funds in order to invest in a basket of investments. Inverse ETFs are riskier because they attempt to make money based on declining prices. “Leverage” means the broker borrowed money in order to purchase securities. This strategy always increases the investor’s chance of losses.
What Are the Most Common Types of Investment Fraud?
Investors should be aware of the most common types of broker fraud. To catch any red flags, Pennsylvania securities attorneys advise that investors should regularly review their account statements to ensure that there are no unexplained or overly risky transactions.
Unsuitable Investments: Investors state their risk tolerance at the outset of their working relationship with a broker or financial advisor. If an investor selected a conservative or moderate risk tolerance, they should consider contacting a securities attorney if an investment suffered significant losses or came with high fees. Investments may also be unsuitable because they are illiquid, meaning they are meant to be held for a prolonged period.
Breach of Regulation Best Interest (Reg BI): RegBI builds on the requirements of FINRA Rule 2111, which prohibits unsuitable investments. Brokers are required to exercise care and skill when they make recommendations. The rule stops short, however, of requiring brokers to act as fiduciaries. Fiduciaries have a legal obligation to act in their client’s best interests.
Failure to Supervise: Brokerage firms have a duty to supervise their broker’s recommendations and should catch overly risky recommendations.
Misrepresentation and Omission: According to federal and Pennsylvania securities laws, brokers are required to provide any facts that could affect an investor’s decision to buy securities. This includes information about an investment’s risks, fees, and liquidity.
Elder Abuse: Investment fraud perpetrated against the elderly is a form of elder abuse. The elderly may be taken advantage of by financial professionals ingratiating themselves under the guise of friendship. Sadly, many elderly people suffer unfair financial losses when a broker has their name added to a bank account, or “borrows” money with no intention of giving it back.
Negligence: Brokerage firms are required to perform their due diligence before recommending an investment. A broker should thoroughly understand how an investment is supposed to work and how best to manage the investment to avoid unnecessary losses or sales charges.
Violations of Communications with the Public Rules: Financial professionals are required to furnish potential investors with information that is fair and balanced.
High Standards of Commercial Honor: This rule covers a variety of types of securities fraud, including forgery and failing to follow investor instructions.
Unauthorized trading: Unless an account is approved for discretionary trading by both the investor and the brokerage firm, brokers are required to seek approval from their customers before executing a securities transaction.
Books and Records: Brokerage firms are required to maintain accurate and up-to-date records. This rule precludes brokers from forging their customer’s names on any official documents.
Pennsylvania Investment Fraud in the News
Typically, multi-million-dollar securities fraud cases make the news. But smaller-scale securities fraud is alarmingly common, and Pennsylvanians should be suspicious of any unexpected or unusual losses in their investment accounts.
Overseas Ponzi Scheme
In 2020, a Pennsylvania lawyer was sentenced to over seven years in prison for his role in a Ponzi scheme. He told his clients that the investments would generate a return from mining operations in Papua New Guinea and penny stock offerings. Investors allegedly lost $2.7 million.
Alleged Ponzi Scheme Targeting Amish and Mennonite Communities
2021 saw another man sentenced to 10 years in prison following allegations he swindled 400 Amish and Mennonite families out of $59 million. This type of fraud is known as an “affinity fraud” and it targets a specific ethnic or religious group.
Alleged Loan Fraud by Former Investment Adviser
The SEC charged a former Pennsylvania investment adviser with a multi-million dollar fraud, alleging that he borrowed money from investors, only to repay them with money he borrowed from new victims. He allegedly defaulted on his loans and owes his former clients $50 million.
What Can a Pennsylvania Investment Fraud Lawyer Do for Me?
Kurta Law specializes in cases of Pennsylvania investment fraud. Our law firm has its main office in New York City, but our attorneys are experts in Pennsylvania securities fraud laws.
Kurta Law attorneys also have excellent tack records in FINRA arbitration – most investment contracts include a “pre-dispute arbitration clause” that forces investors to go through arbitration rather than suing in civil court. Contact our office today to claim a free case evaluation. You pay nothing up front and we do not collect a fee unless we win your case. Contact a Pennsylvania securities fraud attorney to discuss your potential case: (877) 600-0098 or email info@kurtalawfirm.com.