Prospectuses are required before a stock, bond or mutual fund is made publicly available for trade. Reviewing the document thoroughly is an important part of investment fraud protection. It is a formal communications document containing information about expenses, gains, losses, holdings, business objectives and more.
Fundamentally, it is a guide to help you assess risk, decide how to allocate your assets, and whether the investment is right for you. It’s rare that you’d find an investor that has read a mutual fund or stock prospectus word for word. Most investors take a look at the high level summary of useful information contained in the document.
Misleading prospectuses including incomplete or unverified information can cost you a significant amount of money. Many times those who have been defrauded find out too late, and aren’t able to recover their funds due to lack of regulation by policy makers. The SEC has rules in place to protect investors from problems with a misleading prospectus. But these often fall short, making it up to you to avoid pitfalls and bad actors.
What You Can Do to Fight Back
SEC Rule 10b–5, prohibits any act or omission resulting in fraud or deceit in connection with the purchase or sale of any security. To recover, plaintiffs must be able to show that the fraud caused their losses. Standard damages in fraud cases are expectation or benefit of bargain damages.
If you suspect you have been the victim of fraud consult an investment fraud protection professional. It’s important to take action immediately because statute of limitations exist and vary by jurisdiction and offense.
Conclusion
Fraudulent documents and misleading statements have and will continue to exist in the securities industry. The best thing you can do to protect yourself from harm is do your research on the product(s) you are buying, as well as the people you are buying from. Investors searching for high returns need to understand the risks involved. If there is any question to the legitimacy of the deal, it’s always a good idea to investigate before you invest.