Victim of Investment Fraud? – We Fight for Investors
We help investors recover losses due to abuses such as investment fraud, stockbroker fraud, unsuitability of investments, and churning.
Most stock and bond losses are the result of market forces, economic factors, and technical trends that have nothing to do with the advice you receive from your stockbroker or advisor. However, if you have suffered losses due to bad advice or wrongful action, you can sue your stockbroker and possibly recover some or all of your losses.
Almost all brokerage firms require their customers to contractually agree to submit all disputes to binding arbitration before some self regulatory organization (SRO) such as the NASD, NYSE, or ASE. The new account form of a brokerage firm, that is signed by investors, is the usual binding instrument that requires arbitration for disputes.
Digital Asset and Crypto Investment Scams
The financial industry has been transformed in recent years by Bitcoin, Ethereum, Terra Luna, alt coins, and other cryptocurrencies, but there are significant risks. The explosive growth of digital currencies and investments is concerning, especially given the new technology. A lack of significant oversight has resulted in disastrous results. Billion-dollar crypto losses have been attributed to security breaches, fraud, and market volatility.
Fraudulent ICOs (initial coin offerings), crypto investment scams, marketing scam artists, and other potentially illegal activities are garnering a lot of attention, and federal investigations are leading to a lot of charges with big fines and long prison sentences.
Suffered an Investment Loss?
An investor can initiate a complaint and can possibly recover losses through an arbitration proceeding. Discovering what security rules were violated come through the analysis of monthly statements, confirmations, and all correspondence.
Some of the common complaints against a broker are breach of fiduciary duty, churning (excessive trading), unsuitable recommendations, misrepresentation, mutual fund switching, unauthorized trades, and front-running.
What is Improper Activity?
Improper brokerage account activity is the unprofessional, inappropriate, or the illegal handling of client assets by a broker.
The foundation of the securities industry is fair dealing with customers. The customer can be an individual, an institution, or a corporation. The obligation of a professional broker is to serve customers honestly and with integrity. The customer’s interest should be his first and foremost obligation.
In order to serve a customer properly, the broker must have a thorough understanding of each customer’s financial condition. Some of this information can be found in the new account form that is signed by the customer. Other information is discovered through conversations with the customer and from verifications from banks or other brokerage accounts. Many firms suggest doing a financial plan for the customer as much information is contained in this document.
The next step in serving a customer properly is to implement the customer’s investment objectives. The broker is trained to understand the various types of investments and the risks associated with each type. Specific recommendations and strategies should be in accordance with each customer’s investment objectives and risk tolerance.
Improper activity occurs when recommended investments by the broker are not within the guidelines of the customer’s investment objectives and/or risk tolerance. Securities laws provide a cause of action for individuals if a broker abuses the customer’s account, such as engaging in schemes to defraud, making untrue statements or material omissions , or deceiving the investor. If you lost money because of some abuse by a stockbroker, you should know that you might be able to recover your losses.
What abuses are common?
The investor-broker relationship is based on trust, a trust that the broker understands the investor’s financial objectives and will manage his assets accordingly. A key component in that relationship is the exchange of information between the broker and investor, with the investor specifically authorizing transactions that affect the account. The basis of any abuse is the breach of that trust through the inappropriate management of those assets.
The following are some common complaints against a broker:
Excessive trading in a customer’s account is referred to as “churning.” There is no specific standard for churning; however, activity in a customer’s account must comply with the stated objectives and financial situation of the individual customer. Usually, excessive trading is motivated by the broker’s desire for commissions. Large amounts of commissions, a high Turnover Rate, and an Account Cost Analysis are all measures of churning. The broker’s exercise of control over the trading in the account is the abuse of the customer’s trust.
Unsuitable Recommendations (Suitability)
Prior to recommending a purchase, sale, or the exchange of a security, a broker should have a thorough understanding of the customer’s financial status, investment objectives, risk tolerance, and level of sophistication. These standards must be considered for any question of suitability. The violation of the “Know Your Customer Rule” can be the basis for a complaint. A broker is clearly prohibited from making unsuitable investments.
Breach of Fiduciary Duty
Since there is usually a relationship of trust and reliance between the customer and broker, it is generally accepted that this relationship gives rise to a fiduciary relationship. A fiduciary is obligated to act in a diligent and faithful manner and should perpetuate the customer’s best interest. Since investors place their trust in their broker and his expertise in making investments, the broker is held to a high standard not to abuse that trust.
Fraudulent Use of Statements or Omissions
Before an investor is induced to buy, sell, or exchange a security, he must first be given all relevant facts surrounding that security. If a broker conceals relevant facts, the omission itself can be regarded as fraudulent misrepresentation. If a broker recommends an investment without disclosing the potential risks, the recommendation itself is also fraudulent.
Prior to making a trade, the broker must contact the customer for his approval. The fact that the broker called the customer after the trade was effected, is not an acceptable trade. However, trades can be effected without calling the customer, if the broker has been given written discretion. Oral discretion is acceptable for time and price, for a particular situation that has been fully discussed, not for the entire account’s activity.
Mutual Fund Switching
It is generally accepted that mutual funds are considered long term investments. There are times that switching a fund can be a sound move, since most large mutual fund companies have a family of funds, each with different investment objectives. Most fund companies allow investors to swap funds within their group without additional charges.
There are additional sales abuses such as mismarking tickets, using inside information and front running, sharing in accounts, unauthorized or inappropriate use of margin and failure to supervise.
Do you have a Broker Dispute?
Now that you have become somewhat familiar with the common abuses and improper activity that sometimes take place in brokerage accounts, what are your options?
The first step is to determine if you have a case. We represent investors in cases of improper brokerage account activity. A very important part of this process is the calculation of damages in a client’s account.
Calculation of Damages
The calculation of damages could be only the specific trades that incurred losses that were the result of improper activity by the broker or by taking into account the damages of the overall account. The money-in/money out calculation involves the initial investment, after subsequent deposits and withdrawals, less the ending balance The net result is an overall damage figure for the period in question. The money in/money out approach takes into account the effects of commissions, margin interest, dividends and interest, and both profitable and unprofitable trades.
There are times that investors are also able to recover interest on the sustained losses of the account. Under the Uniform State Anti-Fraud Securities Act, damages are calculated based upon the amount paid for the securities less all distributions, plus interest at 6% per year. The interest can be meaningful, especially when a few years have elapsed since the initial investment. Attorney’s fees and expenses can sometimes be included as part of the damages and are awarded by arbitrators when deemed appropriate.
Awards in excess of the actual amount needed for compensation (punitive damages) are sometimes given so as to punish the perpetrator of the fraud and to set an example to discourage such activity. Usually, it takes the exceptional case for punitive damages to be awarded.