Call Now For a Free Consultation:
(614) 532-4576
Nationwide Representation

How Can a Cpa Protect Their Clients From Investment Fraud?

Consult with Our Legal Team
There is never a cost associated with a consultation
Common Questions
For The Advocacy You Deserve Contact Us Today!
We’ll respond and let you know the best way to proceed with your case.

How Can a CPA Protect Their Clients From Investment Fraud?

How can a certified public accountant or tax preparer help protect their clients from becoming victims of investment fraud? Many investment fraud cases have been referred to our law firm by CPAs and other tax professionals. The fact is, CPAs can serve as a strong frontline defense in helping to detect and prevent instances of investment fraud. If you’re a CPA or tax professional, there are several red flags that you can look out for to help protect your clients from unscrupulous stock brokers and investment advisors. 

Excessive trading and churning is a tactic that some brokers use to generate excessive commissions. A good rule of thumb is that if your client’s Schedule D on the Form 1040 for capital gains and losses is more than one page long, look into the transactions more closely. Are there multiple listings for the same securities?

Large losses are also a red flag for inappropriate investments, especially in the accounts of clients who have limited assets, who are recent widows or widowers, or who have recently inherited funds. You should be alert to a client who expresses surprise at their losses. If your client’s 1099 from the brokerage firm reflects significant losses, consider looking closely at their brokerage account statements to determine what the client invested in and if it is appropriate for them.

Another red flag is money being returned to the client as return of principal instead of income. Sometimes, brokerage customers mistakenly believe that their principal is safe and intact, when in fact, it is being depleted through distributions that the client believes are from income. The client’s brokerage statements may not reflect the source of the distributions, however, you can reconcile distributions the client receives from reports such as the K-1s of partnerships and 1099s.

Finally, because of their unique knowledge of their clients and financial situation, CPAs may be able to detect the financial exploitation of elderly or vulnerable clients such as the recently widowed. Be on the lookout for erratic or unusual banking transactions such as frequent, large withdrawals, uncharacteristic attempts to wire large sums of money, or the closing of CDs or accounts without regard to penalties.

By keeping an eye out for these red flags, tax professionals can play a vital role in protecting their clients from investment fraud.

Atlanta Office

945 East Paces Ferry Road, Suite 2275
Atlanta, GA 30326
Columbus Office

305 W. Nationwide Blvd
Columbus, OH 43215
Meyer Wilson
New Orleans Office

900 Camp Street 
Suite 337
New Orleans, LA 70130
Los Angeles Office

2029 Century Park East,
Suite 400N
Los Angeles, CA 90067
Cleveland Office

4781 Richmond Rd.
Suite 400
Warrensville Heights, OH 44128
Bloomfield Hills Office

41000 Woodward Ave.,
Suite 350
Bloomfield Hills, MI 48304
Quick Links
The information contained in this Website is provided for informational purposes only, and should not be construed as legal advice on any subject matter. No recipients of content from this site, clients or otherwise, should act or refrain from acting on the basis of any content included in the site without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from an attorney licensed in the recipient's state. Read More
The information contained in this Website is provided for informational purposes only, and should not be construed as legal advice on any subject matter.
Read More
crosschevron-down linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram