Mutual funds are popular with investors because they consist of multiple stocks, meaning if one stock does poorly in the market, it doesn’t necessarily lower the entire mutual fund portfolio. Even so, mutual fund portfolios can be designed to be either very conservative or very risky. Mutual funds can include a variety of stock types or can be organized into specific industries like technology, healthcare, etc.
Two ways investors can be victims of fraud through mutual funds are churning and break point fraud:
- Churning: As market condition change, a stockbroker may suggest switching to a different mutual fund. If the new fund is within the same company as the old one, the investor usually doesn’t have to pay a commission. However, if the new fund comes from a different company, the investor must pay commissions and fees on the transaction. If the stockbroker encourages switching to a different company despite suitable options within the same company or attempts to generate commissions by encouraging the investor to switch multiple times to different companies, they may be “churning.”
- Break Point Fraud: When investing in a mutual fund, the commission percentage drops as you invest more money in a company. The term “break point” refers to the financial intervals at which the commission percentage drops. An investor can purchase separate funds within the same company and combine the total money invested to reach a lower break point and, thus, pay less in commission. If a stock broker does not make them aware of this concept and/or recommends small purchases with multiple companies — rather than one or a few companies — without good reason, then they have committed break point fraud.
If you believe you’ve been a victim of mutual fund fraud, either through churning or break point fraud, you may have a valid securities arbitration claim. To find out more about your legal rights and options, contact an investment attorney at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.