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: The information at this site is provided as a public service. It is not intended as legal advice and should not be relied upon. You are advised to consult 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.
This page last updated on April 8, 2008
Copyright © 1999-2008 Vincent DiCarlo