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Projecting success as a financial advisor could constitute fraud

On Behalf of | Jul 22, 2020 | Criminal Defense

Some of the advice that people give those trying to start a new business could actually be harmful for someone who wants to work in financial management or investing. The idea that you should fake it ‘til you make it, as well as the idea that you need to spend money to make money, can put those seeking to establish themselves as financial advisors into a dangerous position.

What at first may seem like ways to attract clients or reward those who initially signed up with you could snowball into something beyond your control and leave you vulnerable to prosecution. For example, allocating investment funds from new investment clients to long-standing clients and pretending those funds came from investment successes might constitute financial fraud.

What starts out innocently can develop into a Ponzi scheme

You know that you have a gift for predicting the market, and you dream of not only being able to support yourself with the skill but also help others increase their own financial stability by guiding them to make better investment decisions.

With interest rates remaining at near-historic lows, savings accounts, CDs and more conservative options for retaining wealth are not very attractive to those hoping to earn a return on their investment. You might see an opportunity and make promises for substantially higher-than-interest-rate returns on an investment fund.

Once you have a few people signed up, you may find that you need to use some of the money intended for the fund to cover business expenses. You might also try to cover bad investments or market downturns by taking money from new clients and paying it out to old clients.

You may not actually intend to defraud anyone, but your business activities might still qualify as a Ponzi scheme, especially if you are able to regain control and ensure everyone receives their investment capital back.

White-collar crimes are still serious offenses

Some people think that white-collar crimes like financial fraud don’t carry serious penalties or that they can probably secure a plea deal that will minimize their criminal consequences. Others assume if they use funds to pay other clients, not themselves, they won’t face charges or at least, not the worst possible penalties.

The truth is that pleading guilty to financial fraud and similar offenses may prevent you from ever working in the financial sector again. Additionally, the consequences you face could be more serious than you imagined depending on the scope of your business and the amount of money lost or misappropriated.


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