Failure to Follow Instructions -- Investor Recovery Center explains how investors can recover money lost due to the failure of their stockbrokers and investment advisors to follow their instructions or orders.

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Failure to Follow Instructions

Whether your account is discretionary or nondiscretionary, your broker or investment advisor has a duty to follow your instructions with respect to your account. If he fails to do so, you have a claim for any losses that may result.

Two common examples of instructions that may not be followed are:

Instructions to sell securities that are being promoted by the broker.
Instructions not to use margin.

The first scenario is most often seen where a broker for a boiler room operation induces an investor to buy a stock that is being promoted by the boiler room. Because the boiler room is usually trying to pump up the price of the stock, at least until they pull the plug, its brokers often strongly resist instructions to sell the stock. Often they will first attempt to convince you that it is a bad time to sell or that the stock is about to rise again. If that doesn't work, they may simply fail to follow your instructions. This can result in catastrophic losses when the price of the stock collapses, as it almost invariably does.

The second scenario is also surprisingly common. I suspect that the reason why some brokers resist instructions to stop using margin is that the instruction usually comes after a decline in the market. If the broker is convinced that the decline is a temporary correction, he may not want the investor to lock in a substantial loss. Of course, if the broker is wrong and the portfolio continues to decline, the result may be a total loss.

Regardless of the scenario, where the failure of a broker or advisor to follow a customer's instructions causes a loss, the investor has a claim that may be worth pursuing.

For more information or a free consultation, call us toll free nationwide at 800-699-2728 or e-mail us at vdicarlo@dicarlolaw.com

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
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