Bond Fraud

Yet another area of investments, where fraud has become rampant is Investment Bonds. As though securities fraud, stock fraud, and mutual fund fraud were not enough to contend with, now investors have to also deal with different types of Bond Fraud.

Bonds have always been a kind of investment that has known to be safe and secure, and which gives you your capital and interest on maturity, albeit not very high rates of dividends. But now, bonds no longer remain safe, because of bond fraud.

Types of Bond Fraud

1) Broker Related Bond Fraud: With more and more people opting to invest in stock, bonds fast became a neglected investment instrument. But as the regulations for trading in stock and mutual funds were being changed, and because it became difficult to commit fraud in those investment areas, brokers once again turned to bonds as a means to increase their income. They started pushing bonds to their clients, saying that a portfolio needs some ‘safe’ and ‘secure’ investments as well. The bonds are also touted as high yield bonds, which would eventually yield high profits.

But what the broker fails to mention to the clients is that the bond is not totally secure and could end up losing money and decreasing in value if interest rates go up. The brokers also typically fail to disclose to their clients that the bonds have been marked up by the sellers, so as to pay commission and fees to the brokers, which is why they are pushing the bonds, and not because they have the clients interest at heart.

2) Historical Bond Fraud: Historical bonds are bonds that were at some time issued by various American bodies, but in today’s times have no real value, except as memorabilia or collector’s items. These historical bonds are being used by many fraudsters to commit fraud and cheat investors out of their hard earned money. Conmen use the following deceptions and lies to ‘sell’ these worthless bonds to investors.

• Investors are told that the historical bonds have the backing of the US Treasury Department, which is not true at all. Most historical bonds have the words ‘United States of America’ printed on them, which is why investors seem to believe that they have something to do with the US Treasury Department. What they don’t know is that the words just indicate that the bonds are issued by an entity in the US, and not by any government body.
• The bonds will be paid back in gold, is another lie that works very well to sell these bonds. While that was true at some time (prior to 1977) it is not so anymore. And since historical bonds are not payable at all, there is no question of payback in gold or any other manner.
• Investors are often told that some of the money from the sale of the bonds is used to help some poor nations and people by the World Bank or the UN. Such lies often make these bonds more believable and people also think they are doing their share of good by investing in these bonds.

Investors are also told by the conmen that the bonds can be used in some trading programs and can be traded as high yielding securities and debentures, and that such programs are sanctioned by leading banks in the world, national as well as overseas. It goes without saying that all the above claims are false and are used to commit historical bond fraud.

If you have been the victim of any bond fraud, you may have an arbitration claim and could recover some or all of your investment losses. Consult an attorney, who is an expert in fraud lawsuits, to know more about legal avenues available in bond fraud cases.