Many employees who received stock options from their employers have lost their entire savings as a result of irresponsible advice by their stockbrokers. Such employees were sometimes advised to exercise their options and then borrow money on margin to pay taxes or make high risk investments. When the prices of their stock declined last year, people who followed this advice were wiped out.

Even employees who worked for substantial companies whose stock has retained significant value, like Microsoft, Cisco Systems, Dell Computer, Adobe, Oracle, and others, lost their entire investments, and were sometimes left with large unpaid tax liabilities. If they had been properly advised, many of these people would have well diversified and unmargined portfolios that would have allowed them to ride out recent declines in the stock market.

When a stockbroker, investment advisor, or financial planner recommends an investment, there must be reasonable grounds to believe that the investment is suitable for the client in light of the client's circumstances and investment objectives. Putting a person's life savings in a situation where it will be wiped out by a downturn in the stock market is, in our opinion, unsuitable and improper on the face of it. It's like having a person park his car on a train track, put on a blindfold and earplugs, and wait for the train to arrive.

If an investor loses money as a result of reasonably following a recommendation of an unsuitable investment strategy, he or she generally has a claim that may be worth pursuing.

DISCLAIMER: Vincent DiCarlo, who authored and maintained this site, has entered government service and, as of September 1, 2008, is no longer engaged in the private practice of law.  Therefore, this site is no longer being maintained,  may not be accurate, and should not be relied upon.  It is not now and was not ever intended as legal advice.  It is being provided for historical purposes, and for the benefit of those lawyers who are capable of independently verifying the information and judging the opinions in it, and then reaching their own conclusions.  You are strongly advised to consult qualified legal counsel before adopting any of the ideas or suggestions in this material, which may or may not be applicable in your jurisdiction or to your specific situation, and may no longer be accurate or prudent in any case.  The opinions and statements at this site were solely those of the author.  They were not and are not those of, nor were they nor are they made on behalf of, any agency of government or anyone else.

Copyright © 1998-2008 Vincent DiCarlo