Most
claims by investors against their stockbrokers, investment advisors,
and
financial planners fall into certain well recognized categories. The
six
most common claims that we have seen are
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Law Office of Vincent DiCarlo |
Email: vdicarlo@dicarlolaw.com |
The Six Most Common Investor Claims
Most
claims by investors against their stockbrokers, investment advisors,
and
financial planners fall into certain well recognized categories. The
six
most common claims that we have seen are
"Misrepresentation" is legalese for "lie". Often, these cases arise in the context of boiler room operations, from which teams of brokers make a large volume of cold calls using high pressure sales tactics. Such boiler room brokers often falsely claim that they know what price a stock is going to go to, that their firm controls the price of the stock, that they have inside information from the company, that profits are certain, or that they are selling you stock from a hot public offering. Misleading omissions can be just as actionable as affirmative lies as, for example, when a telephone broker tells you that a company has billions of barrels of proven oil reserves without telling you that those reserves cannot be recovered economically.
Excessive trading, or "churning" occurs when a broker who has discretionary authority or practical (called "de facto") control over an account engages in excessive trading in order to generate large commissions. This practice will provide a basis for claims for state and federal securities fraud, common law fraud, negligence, breach of contract, and breach of fiduciary duty.
Another common experience involves a broker who makes unauthorized trades on behalf of a client. The broker may simply fail to consult a client before making trades in a nondiscretionary account. Sometimes the broker buys stock on margin without authority or ignores specific instructions by a client with respect to a discretionary account. Unauthorized trading can result in claims for rescission, breach of contract, or fraud, depending on the facts.
Sometimes, a broker will fail to follow a client's instructions. This is another behavior that often occurs in the context of boiler room operations. When the investor wants to sell the stock that the boiler room is touting, the broker often tries to convince the investor to hold on to the investment or simply fails to follow his instructions to sell. This can result in large losses when the price of a manipulated stock collapses.
Finally, a broker may simply misappropriate an investor's funds. This often occurs in situations where the broker is not reporting a particular transaction to his employer. This practice is known as "selling away." In connection with selling away, it is important to remember that, even if the firm employing the broker is unaware of the transaction in question, or even of the existence of a particular customer, the investor often recovers from the firm on a theory of respondeat superior, controlling person liability under both the state and federal securities laws, or negligent supervision.
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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
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