Billionaire hedge fund executive, Raj Rajaratnam, was convicted on all 14 counts of insider trading and fraud. He ran one of the largest hedge funds, and he is one of the most prominent individuals convicted on charges brought by the Government on insider trading. Mr. Rajaratnam was convicted by a Federal jury on insider trading, fraud and conspiracy charges. He faces up to 25 years in prison.
Insider trading is one type of investment fraud that plagues investors in Los Angeles and other cities across the country. Investors can also fall prey to unscrupulous investment advisors who abuse the trust they receive especially when investors are in the midst of a crisis such as a death of a spouse or the victim of an illness. Other forms of investment fraud include:
- • Churning: excessive trading or turning of an account by an investment advisor or broker to generate broker commissions.
- • Improper Margin Trading: a broker who places an investor on margin (a loan from the brokerage) to add funds to a portfolio to invest in securities which increases the risk of the portfolio.
- • Unauthorized Trading: a broker who does not have authority or written discretion to trade on an account, executes trades without an investor’s approval.
- • Ponzi Scheme: brokers who pay returns to investors from money invested by subsequent investors like the scheme of Bernie Madoff.
- • Breach of fiduciary duty: investment advisors who handle managed accounts provide financial advice to investors; they have discretionary authority to trade on behalf of investors and are fiduciaries to their investors.
- • Unsuitable investments: brokers or investment advisors many times recommend investments that are unsuitable to the investors; these often occur when elderly investors are convinced to purchase annuities or life insurance policies that pay large up front commissions to brokers.