Am I a Victim of Securities Fraud?
Deceptive Brokerage Practices Result in Investor Losses
Because investment products are often sophisticated and intricate by nature, the professional expertise of a financial consultant, CPA or securities arbitration lawyer may be necessary to gain a full understanding of the investment. Savvy customers with successful businesses rely on a financial advisor or broker to disclose risks and recommend investments suitable to their needs. However, dishonest or negligent handling of investments has cost customers hundreds of thousands of dollars.
A variety of deceptive brokerage practices victimize investors, resulting in financial losses. The following are some of the ways in which misconduct or investment fraud may occur:
Churning
Churning is excessive trading for the purpose of generating broker commissions. Churning is done at the expense of the investor and is not in the investor’s best interests. Our lawyers can evaluate your account to determine if churning has occurred by:
- Examining purchase and sales trading activity
- Evaluating how frequently account equity is turned over for securities purchases
- Calculating the rate of return per annum needed to cover commissions
Unsuitability
Unsuitability refers to purchase and sale of securities that are unsuitable for an investor. A broker or financial advisor has the responsibility to understand the investor’s needs, such as the investor’s:
- Risk tolerance
- Investment objectives
- Expected rate of return
- Tax considerations
- Previous experience and desire for risk
For example, when investing for a retiree, lower risk stocks and bonds are usually more appropriate than extensive investment in high risk securities. When an investor has lower risk preferences, Collateralized Mortgage Obligations (CMOs) or Mortgage Backed Securities (MBS) bonds issued by Fannie Mae, Freddie Mac, or other organizations would not be appropriate because they represent comparatively risky investments. If your broker did not follow your instructions for buying or selling securities or talked you into buying on margin when this recommendation did not match your appetite for risk, these account activities would be considered unsuitable.
Over-concentration (Lack of Diversification)
Diversification protects an account against losses that can result from concentrating too heavily on one investment or one type of investment. Because risk increases proportionately with over-concentration, a broker who fails to diversify may be held liable for financial losses incurred in an investor’s portfolio that is over-concentrated.
Misrepresentation & Omissions
Brokers must disclose risks connected with investments to their clients. When a security is misrepresented and the investor is not provided with an accurate picture of risks involved, either through deceptive representation or omitted information in the presentation of the security, this practice is called misrepresentation and omissions. Financial consultants driven by greed and focused on earning commissions may lose sight of their responsibility to investors.
Unauthorized Trading
Some accounts called discretionary accounts authorize a broker to trade on behalf of the client without prior consent or based upon established restrictions. When a broker sells or purchases stocks in violation of the restrictions or in an account which is not a discretionary account, there may be grounds for unauthorized trading. The sooner the unauthorized trading is discovered and legal action is taken, the better chances the investor has of recovering his or her losses.
Annuity Switching
Switching an annuity before it has reached maturity, will incur a penalty cost to the investor. Paying surrender fees may not be in the investor’s best interests. Also switching to an annuity that will take years to mature before the owner receives benefits is inappropriate for an elderly investor. The investment would tie up an elderly investor’s money, and he or she may die before ever benefiting from the investment.
Excessive or Unsuitable Use of Margin
A margin account is one in which the investor borrows money from the brokerage firm in order to buy securities. The brokerage charges interest on the money borrowed and the securities purchased serve as collateral. With margin investments, gains and losses are both amplified, and buying stock on margin is considered a risky investment. If margins are excessively used or used for an investor who has a low risk tolerance, the broker may be liable for financial losses.
Scarlett & Gucciardo, P.A. represents clients nationwide and abroad from our office based in Boca Raton, Florida. If you believe you have been a victim of broker misconduct or investment fraud, please contact our office online or at (561) 278-6707 to arrange a consultation. Consultations are free, and cases are taken on a contingency basis - no recovery, no fee.
