Investment losses aren’t always due to market conditions alone. Sometimes, an investor loses money because their stockbroker fails to follow legal and ethical obligations. Broker negligence and outright fraud are recurrent problems that cost investors hundreds of millions of dollars per year. If a broker’s misconduct results in an investor losing money, the investor may be able to file a legal claim to recover their losses.
Are you the victim of stockbroker misconduct? Contact us for a free case review.
What is a Stockbroker’s Duty to Investors?
One of the most important obligations that a stockbroker owes to a client is to recommend or solicit only “suitable” investments in light of the client’s age, investment objectives, risk tolerance, investment time horizon, tax status, and liquidity needs, among other things. The suitability standard is recognized by FINRA Rule 2111, which governs brokerage firms and their stockbrokers. The suitability obligation applies not only to buy or sell recommendations, but to “hold” recommendations as well.
Fraud vs. Misconduct
The difference between negligent misconduct and fraud comes down to intent. When a broker recommends an unsuitable investment to a client because the broker failed to perform adequate due diligence, it may be considered negligence. However, if the broker recommends an unsuitable investment because, for example, the investment will primarily benefit the broker, this may constitute willful misconduct or fraud.
Whether a broker’s actions qualify as fraud or misconduct is usually based on the specific circumstances. But some broker actions are almost always fraudulent, including theft of a client’s assets or exploitation of an elderly or incapacitated client.
In either case, an investor who loses money as a result of fraud or misconduct is entitled to recoup their losses.
Types of Broker Misconduct
The Business Trial Group represents investors in a wide range of broker misconduct claims, including the following:
- Unsuitable Investments: Brokers have a duty to recommend investments that are suitable for the customer, based on that customer’s individual needs and investment profile. Learn more about unsuitable investment recommendations.
- Overconcentration: Investing too heavily in a single asset type, class, or sector is a risky strategy that needlessly endangers client assets. Brokers have a professional obligation to ensure that a client’s assets are sufficiently diversified. If, for example, a stockbroker recommends over-concentrating investments in companies involved in one particular industry, the investment can suffer catastrophic losses if that industry experiences a downturn.
- Excessive Trading: When a broker makes excessive trades in a client’s account for the purpose of generating broker commissions, this is known as “churning.” Proving that a broker churned your account can be difficult, but if successful, you can recover not only portfolio losses, but also damages for excessive commissions or expenses.
- Unauthorized Trading: In a non-discretionary account, a broker needs client authorization before executing any transaction in the client’s account. If a broker makes a trade without obtaining client authorization, the broker has made an unauthorized trade. The client may then seek to recover monetary damages for the unauthorized trade.
- Misrepresentation or Omission: To ensure that a client makes an informed investment decision, a stockbroker must provide accurate information about the recommended investment. Accordingly, a stockbroker is not permitted to misrepresent or omit important facts about a recommended investment.
Protecting Investors With Contingency-Fee Representation
Most stockbroker fraud and misconduct cases are handled through FINRA arbitration. In 2018, more than 3,000 FINRA arbitration cases were filed. The Business Trial Group regularly battles brokerage firms in FINRA arbitration. The Business Trial Group also helps investors recover against investment advisory firms and banks in court cases.
The Business Trial Group attorneys have helped investors recover millions of dollars of dollars in losses caused by financial advisor misconduct. We handle every investment-loss case on a contingency-fee basis. As a client, you pay no up-front legal fees, and no fees at all unless we recover your investment losses.
To find out if you have a valid claim against your stockbroker, schedule a free case review.