COMMON INVESTOR CLAIMS FOR MONETARY RECOVERY
When your broker recommends that you buy or sell a particular security, your broker must have a reasonable basis for believing that the recommendation is suitable for you. In making this assessment, your broker must consider your risk tolerance, other security holdings, financial situation (income and net worth), financial needs, and investment objectives. If your broker or financial advisor did not recommend investments that were suitable for a person of your age, experience, education and risk tolerance you may be entitled to a recovery.The Financial Industry Regulatory Authority (FINRA) has suitability rule – Rule 2310 which states:
(a) In recommending to a customer the purchase, sale or exchange of any security, a member shall have reasonable grounds for believing that the recommendation is suitable for such customer upon the basis of the facts, if any, disclosed by such customer as to his other security holdings and as to his financial situation and needs.
(b) Prior to the execution of a transaction recommended to a non-institutional customer, other than transactions with customers where investments are limited to money market mutual funds, a member shall make reasonable efforts to obtain information concerning:
(1) the customer's financial status;
(2) the customer's tax status;
(3) the customer's investment objectives; and
(4) such other information used or considered to be reasonable by such member or registered representative in making recommendations to the customer.
(c) For purposes of this Rule, the term "non-institutional customer" shall mean a customer that does not qualify as an "institutional account" under Rule 3110(c)(4).
Stockbrokers and investment advisors must follow FINRA rule 2310 and only make investment recommendations that are "suitable" for each investor. Before making any recommendation, a stockbroker must considered are a customer's age, income, net worth, liquid net worth, education, understanding of risk, ability to afford the risk, other investments and financial needs. All of these factors must be considered before making any recommendation. A broker's failure to disclose the known or discoverable risks about a particular investment or investment strategy may be a violation of the suitability rules, resulting in actionable misconduct. It is not necessary that the broker intended to conceal facts from you, but only that the broker failed to discover easily discoverable facts about the investment and investor in making his recommendations. If you have been placed in unsuitable investments you may have legal rights against your broker and the brokerage firm.
False Statements & OmissionsYour broker or financial advisor cannot make false statements or omissions. If your broker or financial adviser only talked about the “up side” and how much money you are going to make, without talking about potential risk to your money, this may constitute a material misrepresention or omission by your broker. Your broker has a duty to disclose to you known or readily available information such as the earnings and financial health each companies stock.
False statements often include promises about future performance, price predictions, any guaranties, and special knowledge about the performace of a particular security. Omissions are the failure to disclose known or discoverable risks about a the investment. If you are a victim of false statements or material omissions you may have legal rights against your broker and the brokerage firm.
Unauthorized or Excessive Margin
Margin is when you use your own securities in your account as collateral to borrow money from your brokerage firm typically to purchase more securities. This has the effect of magnifying any profit or loss made on the securities. The securities serve as collateral for the loan. The net value, (the difference between the value of the securities and the loan), is initially equal to the amount of one's own cash used. This difference has to stay above a minimum margin requirement. This is to protect the broker against a fall in the value of the securities to the point that they can no longer cover the loan. This creates a lending relationship with your brokerage firm.
Similar to a bank, when you borrow money, you are charged an interest rate. If the securities in your margin account decline in value sufficiently, your brokerage firm will require you to immediately deposit more collateral to secure the loan due to the decrease in the value of their collateral--the securities in the account. This is called a margin call. When you receive a margin call, you will either have to deposit additional money into the account, or additional securities. If the investor does not have additional securities or money to deposit the firm will sell enough securities to cover the margin call and meet the required equity maintenance levels. When the margin posted in the margin account is below the minimum margin requirement, the broker or exchange issues a margin call. The investor now either has to increase the margin that they have deposited, or they can close out their position. They can do this by selling the securities, options or futures if they are long and by buying them back if they are short. If they don't do any of this the broker can sell his securities to meet the margin call.
The above mentioned senerio puts the investor at risk to lose more than the amount invested if the value of the security depreciates. In addition the margin interest being charged only adds to the financial damage done to the investors usually resulting in the investor owing money to the brokerage firm even after all of his positions have been liquidated.The landmark case of Piper, Jaffray & Hopwood, Inc. v. Ladin, 399 F. Supp. 292; 1975 U.S. Dist. LEXIS 16441 (S.D. Iowa August 26, 1975), holds that "The imposition of a duty to investigate the financial capability of an investor entering a margin transaction and to inform that investor of the implications of a margin purchase can also be justified as part of a stockbroker's professional responsibility.” If you have been put on margin without your permission, were not fully warned of the risks of investing on margin, or do not feel that it was suitable for someone of your age, experience, risk tolerance or net worth to be placed on margin you may have legal rights against your broker and the brokerage firm. Click Here to read more about margin calls.
Unauthorized TradingUnauthorized trading is when your stockbroker or financial advisor places trades in your account without your permission. With the exception of a discretionary account, for each transaction in your account you must give your broker either written or oral permission to place the trade. If your broker has bought or sold a security without receiving your permission you may be entitled to recission for each unauthorzed trade. If you are a victim of unauthorized trading you may have legal rights against your broker and the brokerage firm.
Mutual Fund FraudDid your broker or financial advisor recommend that you purchase an overly aggressive mutual fund? Did your broker or financial advisor disclose the underlying securities owned in the funds along with the inherent risks of the fund? Did your broker of financial advisor excessively trade your mutual funds? Did your broker or financial advisor explain the difference between share classes before you purchased your mutual fund? The difference between class A shares and class B shares is that class A shares charge a front-end sales charge and class B shares do not impose a front-end sales charge. With class B shares a contingent deferred sales charge is used which is paid to the broker at the time of the sale. If you own class B shares you are generally charged a substaintially higher annual expense than class A share holders. Before purchasing class B shares in a mutual fund your broker or financial advisor should have carefully explained the difference in comissions between class A and class B shares. If you answered yes to any of the above questions or were sold class B shares without a full disclosure of the risks and comissions you may have a legal rights against your broker and brokerage firm.
Selling AwayA stock broker can not sell you investments that are not sold to you by the brokerage firm. Typically these outside investments are riskier and payout a higher commission to the broker. If your broker solicits you to purchase securities away from the brokerage firm, your broker is "selling away," which is a violation of the Financial Industry Regulatory Rules, state securities laws and federal securities laws. Typically, these investments are in the form of limited liability partnerships and private placements. If you are a victim of selling away you may have legal rights against your broker and the brokerage firm.
Over-ConcentrationDid your broker or financial advisor overconcentrate your portfolio into one or just a few sectors? Diversifying your portfolio helps create a buffer during turbulent economic times. A broker's failure to diversify a customer's portfolio may result in an excessive amount of risk to the investor. Over-concentration of an account is rarely suitable for any investor especially elderly customers and clients who have a low risk tolerance. If you have too much of one stock, one sector, or several mutual funds owning the same core holdings you may have legal rights against your broker and the brokerage firm.
ChurningDid your broker or financial advisor excessively buy and sell securities in your account? Generally, churning is the practice of executing trades in order to generate commission for the broker or financial advisor. For churning to occur, your broker or financial advisor must exercise control over the investment decisions in your account. Churning can be a violation of SEC Rule 15c1-7 and other securities laws.
The Financial Industry Regulatory Authority (FINRA) has rules prohibiting churning and excessive trading. Excessive trading is the same as churning, but without the requirement that the person engaging in the trading does so for the purpose of generating commissions. Churning and excessive trading can violate FINRA Rule 2310, and FINRA Rule 2310-2(b)(2).
It is also against state securities laws and federal securities laws to churn an account. If you are a victim of churning you may have legal rights against your broker and the brokerage firm. Click Here for more information about stock churning.
Failure to Execute TransactionsEvery broker and financial advisor has a duty to follow your instructions regarding each order placed in your account. Failure to not follow the customers instructions in a timely manner will violates the Financial Industry Regulatory Rules (FINRA) along with state and federal securities laws. A claim may exist based on your broker's failure to execute a requested limit order or a stop loss order. If your broker or financial advisor fails to execute an order or waits a substaintial amount of time before executing that order, you may have legal rights against the broker and the brokerage firm.
Unregistered Broker or SecuritiesAnyone who sells securities must also be registered under the Financial Industry Regulatory and the Securities Exchange Commission broker/dealer registration rules or find an exemption from registration. This is true for anyone who gives financial advice as to the purchase and sale of securities. Investment advisers must also be registered or find an exemption. When an investor purchases a security and the registration provisions have not been complied with the investor may have a right to rescind the transaction and/or hold the unregistered party liable for damages. Federal securities laws and state “blue sky” laws require brokers, brokerage firms and the securities sold to be either registered or exempt from registration. If your broker or financial advisor is not registered or sold you unregistered securities you may have legal rights against the broker and brokerage firm.
Misappropriation of AssetsHas your broker or financial advisor stolen money from you or out of your account? Has your broker or financial advisor asked you to write checks to him personally instead of the brokerage firm? If there is money missing from your brokerage account or the money you paid directly to the broker was never deposited into the account you may be a victim of theft. If your broker or financial advisor has misappropriated assets from your account, you may have a claim against the broker and the brokerage firm.
Auction Rate SecuritiesAuction Rate Securities are debt instruments for which the interest rate is regularly reset through a dutch auction. In or about February 2008, the auctions for these securities began to fail and these investments became largely illiquid and worthless. If you have illiquid auction rate securities you may have a claim against your broker and the brokerage firm.
Bank Preferred StockDid your broker recommend an investment strategy of investing heavily in bank preferred shares? Did your broker tell you this was a safe and secure strategy similar to investing in bonds? Did you purchase may of the preferred shares on the initial public offering and not in the secondary market? If so you may have a claim against your broker and the brokerage firm. Did your broker recommend Fannie Mae preferred shares series S or Z? Did your broker recommend Freddie Mac preferred shares series Z? If so you may have a claim against your broker and the brokerage firm.
Lehman Principal Protected NotesDid your broker recommend Lehman Principal Protected Notes? Did your broker tell you that your principal was 100% protected? Did your broker tell you that you have uncapped appreciation potential based upon the gains in the S&P 500? If so you may have a claim against your broker and the brokerage firm.
Charles Schwab Yield PlusDid your broker recommend Schwab Yield Plus Select Fund (SWYSX) or the Schwab Yield Plus Fund (SWYPX)? Did your broker or financial advisor tell you it was safe and secure and a money market fund equivalent? If so you may have a claim against your broker and the brokerage firm.
Other examples of cases we are currently filing - Click Below:
eTrade Auction Rate Securities
Provident Royalties/Shale Royalties
Lehman Principal Protected Notes
Nuveen Auction Rate Securities Losses and Claims
Cornerstone Ministries Bonds aka Church bonds
Diversified Lending Group
Fidelity Ultrashort Bonds
First Trust Investments
Jefferson County Bonds
Rochester Fund Municipals from Oppenheimer Funds
Citigroup Falcon Fund
Wachovia and A.G. Edwards Auction Rate Securities
UBS Fund Losses
Losses in structured products
Fifth Third Securities Annuity Fraud
Firms sued over not supervising salespeople
Schwab Yield Plus Losses
Unregistered Securities: Leonard & Co.
Losses with Raymond James and Next Financial Group Brokers
American Express Preferred Stock Losses
Bond Default Loss
Investments in bankrupt companies like GM
Aravali Fund Losses with firms such as Deutsche Bank
Highly Levered ETF's Creating Losses in Long Term Portfolios
Medical Capital Corporation Losses