State securities regulators said Thursday that victims of investment fraud should be extremely careful when approached by companies -- known as third-party asset recovery firms -- promising to help them recover their money or bring the perpetrator to justice.
A third-party asset recovery company is a company that charges a fee to assist individuals in recovering money lost in scams. The company claims to gather information on the scam and assist the individual in recovering funds.
According to the National American Securities Administrators Association, an organization of securities regulators in the 50 states and the District of Columbia, many of these self-proclaimed recovery companies are not law firms, but they may advertise that they can provide legal assistance. Typically, the targeted investors have lost thousands of dollars or more to fraudulent investment schemes.
How It Works
Months after an investor realizes he or she has been defrauded in an investment scheme, the investor may receive an unsolicited telephone call or email from a representative of a recovery company promising to recoup lost investment funds for an upfront fee. The recovery companies employ high-pressure
sales tactics such as calling numerous times a week or daily until the investor agrees to engage the company.
The recovery company conducts a cursory search, gathering information from the investor, Internet searches and state regulators - all of which is readily available public information. They may send demand letters to the perpetrators of the initial investment scheme, then file a boilerplate complaint with state and federal regulators on behalf of the defrauded investor.
Often, the information contained in these complaints relates to companies that are no longer in business, have filed for bankruptcy, or have already been subjected to previous regulatory action. Sometimes the complaints are based upon information that is too old for legal action.
In the end, the investor risks becoming victimized for a second time.
In one complaint received by a state securities regulator, a third-party asset recovery company took a sizeable upfront fee from an elderly investor in exchange for filing a complaint with state and federal regulators in an attempt to recover losses on an oil and gas investment from eight years ago. The investor did not know that the perpetrator of the scam was serving time in prison for fraud.
The state securities regulator also discovered that the asset recovery company named the wrong perpetrator in the complaint. Therefore, the recovery company took a fee to file an erroneous claim.
Things to consider before hiring a third party asset recovery company:
- Fees. What is the service going to cost? Some firms charge an upfront fee between $2,500 and $10,000 or use a sliding scale based on the amount of the original investment.
- Investigation. What information will you receive? Promises to gather information usually only include compiling data available from public sources.
- Legal services. What does this mean? Often these companies lack the legal expertise to advise you on all of your available legal options or to initiate a class action lawsuit. Most are unable to negotiate beyond a demand letter.
- Coordination with state or federal regulators. Recovery companies file boilerplate complaints on behalf of investors that contain little information useful to a regulator. These companies mislead you into paying for a service that is available for free through your local regulator.
- Promise of recovery. These companies give investors false hope that they will recover lost funds. In reality, the investment scheme is often so old that the company is either defunct or bankrupt, and recovery is very unlikely.
How to Protect Yourself
• Remember, most defrauded investors rarely recover more than pennies on the dollar of their lost funds.
• Read the fine print of any contract for service before you provide the company your money. Ask for specifics on what services they are providing for the fee.
• Consider whether you can risk losing more money for the possibility that the company may not be successful in recouping anything on your behalf.
• If the firm alludes to providing legal services, such as filing a class action lawsuit, ask for the names and license numbers of the attorneys who work at the firm and verify their licensure with the appropriate state bar association. In Texas, that is the State Bar of Texas.
Bottom line: Before making any decisions with your money, ask questions, do your homework and contact the Texas State Securities Board.