Gregory B. Simon Law, LLC has extensive experience dealing with the following investment-related claims:
Brokers are required to disclose all material facts to a customer when recommending an investment product or investment strategy. Brokers must fully explain the product or investment strategy, including all known risks, fees and costs. Where a broker induces a client to purchase a security based on false, misleading or incomplete information, that customer may be able to pursue a claim for fraud.
Financial advisors have an obligation to act in the best interest of their clients. When brokers take actions that are not in a client’s best interest, they have breached their fiduciary duty and may be held liable for any resulting damages.
Brokers must have a reasonable basis to believe that a recommended transaction or investment strategy is suitable based on the customer’s investment profile, which includes the customer’s age, other investments, financial situation and needs, tax status, investment objectives, investment experience, and risk tolerance. A customer who has suffered losses as a result of transactions or investment strategies recommended by his/her broker that were not in line with the investor’s profile (e.g., overly aggressive stocks or non-diversified portfolio) may be able to pursue a negligence claim for unsuitable recommendations.
Churning (also known as excessive trading) occurs when a broker excessively buys and sells securities in an investor’s account mainly to generate commissions for the broker’s benefit. In a churning case, the broker intentionally disregards a client’s interests and places trades so that the broker can earn commissions. Churning not only needlessly generates commissions for the advisor, but the excessive trading leaves the client with less funds to invest.
Brokers that fail to diversify the securities within an investment account may expose their clients to an unreasonable level of risk. The old adage “don’t put all your eggs in one basket” is a tried and true principle of prudent portfolio management. Brokers that concentrate a client’s investments in one security or one sector increase the potential for the client to lose money. Given the volatility of the market, diversification helps to reduce investment risks and insulate a portfolio from the market’s unpredictability. Where a broker fails to discuss asset allocation or implementing a balanced portfolio, the customer’s investments may very well be overconcentrated.
An alternative investment is an asset that is not one of the conventional investment types, such as stocks, bonds and cash. Alternative investments include private equity, hedge funds, managed futures, real estate investment trusts, limited partnerships, commodities, and derivatives. Most alternative investments are mainly bought by institutional investors or accredited, high net worth individuals who have both the experience to understand the complex nature of the investment and the financial ability to withstand the investment’s inherent high level of risk. Alternative investments are typically highly speculative and lack liquidity and value transparency. Unfortunately, some brokers are attracted to alternative investments due to the high commissions that can be earned when sold to unsuspecting retail clients.
In non-discretionary accounts, brokers can only execute trades that have been specifically authorized by the client (or authorized party). Where trades are placed without the prior consent of the customer, the broker can be liable for any resulting damages.
Brokers have a duty to follow their client’s instructions, including when requested to place a trade. This duty is especially important when dealing with a volatile security where the stock price can fluctuate in a short period of time. When an investor directs a broker to buy or sell a certain security and it is not done in a timely manner, the broker can be held liable.
Brokerage firms have a legal duty to adequately supervise their brokers to ensure that their behavior complies with the various rules and regulations of the securities industry. Brokerage firms must establish and maintain a system to supervise the activities of its brokers that is reasonably designed to achieve compliance with all applicable securities law and regulations. Brokerage firms that fail to catch “red flags” or other apparent signs of misconduct by their brokers can be held liable for a failure to supervise.
If you believe that you may have been the victim of investment fraud, please contact Gregory B. Simon Law for a free, confidential consultation.