Hiring a stock broker is an important decision. Often you are investing your entire life savings with a stranger. When you decide to invest, you trust that the person handling your finances will be smart with your money, and keep your best interest in mind. After all, brokers have a fiduciary duty to their clients; but what happens if you lose money or are not able to access money if you need it? Depending on the circumstance, you might have a claim for fraud or misconduct against your broker. Not every loss gives rise to a claim for fraud or misconduct, investments can be risky, however, if your broker has not taken the time to understand your financial situation, makes unsuitable recommendations, charges excessive or unnecessary fees, makes trades without your permission, or otherwise abuses your trust, you may have a claim.
Failure to Place an Order Stock Fraud
When a stock broker negligently or recklessly fails to make a purchase or trade that a client requested, the result may be a significant loss to the client. This situation is called failure to place an order, and in this situation, the broker may be held responsible for the loss to the client.
Over Concentration Stock Fraud
Over concentration is when a broker invests most, if not all, of a client’s money in a particular type of investment. The Financial Industry Regulatory Authority (“FINRA”) has said that over concentration in certain types of investments may be unsuitable for many investors. Additionally, over concentration exposes investors to more risk than if they were to have a diverse portfolio.
Unsuitability Stock Fraud
Stock brokers have a duty to understand the financial needs of their client. Unsuitability is when a stock broker suggests stocks that are inappropriate to his or her client’s financial needs. The Financial Industry Regulatory Authority (“FINRA”) has specific rules regarding suitability, including that a broker must consider income, net worth, investment objectives, risk tolerance, and other security holdings in order to have a reasonable basis for making recommendations to a client.
Misrepresentation Stock Fraud
The Financial Industry Regulatory Authority (“FINRA”) defines misrepresentation as “untrue representations or omissions of material facts relating to the investment.” Misrepresentation can be when a broker makes an untrue statement about an investment, or omits a material fact about an investment. Misrepresentation of a material fact from a broker may mean that a client does not invest is an option he or she wanted to, or it might mean that the client agrees to a risky or unsuitable investment.
Broker misconduct is any breach of fiduciary duty to the client, by the broker. This could be, misrepresentation of investments, omissions of material facts, unsuitable recommendations, failure to place an order, account churning, or anything else that breaks the trust a client has put in his or her broker.
Investors authorize brokers to buy and sell trades all the time, which generates commission for brokers. Occasionally an investor will give his or her broker the authority to make investment decisions without discussing each transaction with the client. Churning occurs when brokers have this type of control over an investment account, and make unnecessary trades to generate more commissions to benefit the broker, and does not benefit the client. The Securities and Exchange Commission has said that churning is unethical and illegal.
Exchange Traded Funds
Exchange traded funds (“ETF”) are investment companies that do not sell individual shares directly to investors. Instead, ETFs issue large blocks of shares called creation units. Although ETFs are legally classified as open-end companies or Unit Investment Trusts (UITs), they differ from traditional open-end companies and UITs because of how they issue shares. In addition to issuing large blocks of shares, investors typically do not buy shares with cash, but rather with other securities.
If you have been a victim of civil stock broker fraud, you should consult a lawyer today. An experienced attorney can file a lawsuit to help collect damages for your suffering and obtain the best possible outcome for you. Dealing with stockbroker fraud on your own can be overwhelming. A lawyer will make this complicated process understandable.
A civil stockbroker fraud attorney can:
Being a victim of civil stock broker fraud can be traumatic. Stock broker fraud attorneys are skilled and familiar with all state and federal laws. This enables the attorney to give you the advice you need regarding which legal options are in your best interest. Being a victim of stock broker or securities fraud is a scary and stressful time. A Lead Counsel rated attorney can make all the difference in your case.
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