In the dynamic world of investments, where financial markets can be both lucrative and perilous, non-traded securities have emerged as a controversial topic. While these investments may promise steady returns and portfolio diversification, they also harbor the potential for fraud. This blog aims to shed light on the complexities surrounding non-traded securities and the challenges faced when investigating fraud within this realm.

Understanding Non-Traded Securities:

Non-traded securities are investments that are not openly traded on public exchanges. Unlike stocks and bonds listed on major exchanges like the New York Stock Exchange or NASDAQ, non-traded securities are typically illiquid and can be difficult to value accurately. Common examples include non-traded real estate investment trusts (REITs), limited partnerships, and private placements.

The Allure and Risks:

Investors are often attracted to non-traded securities because of the promise of high and/or stable returns and the potential for diversification. However, the lack of liquidity, limited transparency, and potential for conflicts of interest make these investments susceptible to fraudulent activities.

Key Points about Investigating Non-Traded Securities Fraud:

  1. Lack of Transparency: One of the primary challenges in investigating non-traded securities fraud is the inherent lack of transparency. Unlike publicly traded securities, non-traded investments are not subject to the same disclosure requirements, making it difficult for investors to access relevant information.
  2. Valuation Issues: Non-traded securities are notoriously difficult to value accurately. Fraudsters may take advantage of this ambiguity by inflating asset values or providing misleading information to investors. Investigating these cases requires a deep understanding of valuation methodologies and a meticulous examination of financial documents.
  3. Complex Structures: Non-traded securities often involve intricate legal and financial structures. Investigating fraud within these complex arrangements requires expertise in securities law, financial analysis, and a thorough understanding of the specific investment vehicle in question.
  4. Conflicts of Interest: Conflicts of interest can arise when financial advisors or brokers receive high commissions for selling non-traded securities. Investigating fraud may involve examining whether these financial professionals prioritized their own interests over the best interests of their clients.
  5. Money Laundering/Embezzlement: Unfortunately, it is common for the invested funds to be used in a manner not related to the investment. Sometimes, it is used to repay prior investors their returns or initial contributions, much like a Ponzi scheme. Investigating non-traded Securities Fraud requires an in-depth look at bank accounts, financial statements and investor account ledgers.

Unveiling non-traded securities fraud requires a multi-faceted approach that combines legal expertise, financial acumen, and regulatory scrutiny. As these investments continue to attract investors seeking alternative opportunities, it is imperative to enhance transparency, strengthen regulatory oversight, and educate investors about the potential pitfalls. By doing so, we can strive towards a more resilient and trustworthy financial landscape.

If you suspect that you are a victim of non-traded Securities Fraud, reach out to Katheryn Scott. She has investigated and assisted prosecution and defense counsel with many cases in Federal court. Katheryn is the managing partner of Driftwood Investigations LLC and is a renowned forensic accountant Certified Fraud Examiner, and an Alabama licensed Private Investigator with over 25 years of experience. She is a retired FBI Sr. Forensic Accountant and has qualified as an expert witness, working cases all over the United State for the prosecution and defense. Give Katheryn a call at 833.374.3893 today to start your fraud investigation.