- Represented Ecuadorian immigrant who lost $200,000 at the hands of an unscrupulous investment advisor at a major broker-dealer in a securities arbitration case before the Financial Industry Regulatory Authority (FINRA). He received the funds from the settlement of a severe construction accident that left him unable to work. The investment advisor placed him in highly leveraged exchange traded funds (ETFs) and stocks despite his insistence that he sought safety and capital preservation as he could no longer work and would retire soon. Within three months, our client lost 75% and eventually lost 95% of his capital due to the broker-dealer’s negligence. The investment advisor also fabricated information in the opening account documents and covered up his fraud for almost three years.
What is Securities Arbitration?
Investing contains inherent risk and losses may occur. Some losses, however, are the result of illegal, unethical, or negligent practices on the part of the broker or investment advisor. Contact us for legal advice and to discuss remedies for particular investment losses due to fraud or other misconduct. Generally, brokers do not owe the same duties to their clients as investment advisors. On the other hand, in certain cases they may have powers of attorney over accounts, giving them the discretion to act on behalf of their clients. In these instances, brokers have a fiduciary duty to act in their clients’ best interests and are held to a higher legal standard for their conduct. Broker misconduct, with or without discretion, can occur in the following ways:
- Churning, which consists of three elements: (1) Control of the account by the broker, either explicit or de facto; (2) Excessive trading in light of the client’s investment objectives; and (3) Intent on the part of the broker.
In instances where the broker engages in churning, essentially the client is unable to make any money on the transactions because the brokerage commissions are so high.
- Failure to diversify: Failing to sufficiently diversify a client’s account to control risk and avoid excessive loss, whether fraudulently or negligently.
- Misrepresentation & omissions: Misrepresenting or omitting the true characteristics of certain investments to the clients.
- Unauthorized trading: Buying and selling securities without first receiving permission from the client to do so.
- Unsuitability: Recommending investments that are not suitable for a particular client’s set of circumstances, including age, family situation, and financial assets.
- Failure to follow instructions regarding the purchase or sale of stock.
- High-pressure sales practices: “Boiler room tactics” that involve pressuring a client to buy or sell a particular security.
- Stock manipulation: Manipulating stock prices for personal or corporate gain in violation of state and federal law. Variable annuities fraud, including recommending unsuitable annuities to increase the broker’s commissions, inappropriate exchange of contracts, not completely explaining the long-term investment characteristics of annuities, or failing to completely advise investors about the associated risks. Criminal or fraudulent activity, including theft, forgery, or embezzlement.
- Negligence: Failing to meet the proper standard of care with regard to the account.
Investment advisors, brokers, securities broker-dealers, and brokerage firms may be held liable for losses caused by these activities. Investors who suspect that a broker or investment advisor has engaged in one of the above activities should consult with a skilled and knowledgeable attorney.