Warning: Texas Stock Broker Fraud
Investment Fraud — Most Common Investor Claims
In recent years, U.S. investors have been plagued by an unprecedented amount of corporate fraud. Irresponsible and illegal actions by Wall Street firms and corporate executives had a catastrophic effect on many individual investors and employees.
Claims by investors against stockbrokers, investment advisors, and financial planners often fall into certain well-recognized categories. Some of the most common investor claims are:
Unsuitable Investment Recommendations - This occurs when a broker or other professional investment advisor intentionally makes decisions that are inconsistent with your individual financial needs. A broker has a legal obligation to make recommendations that are consistent with the client’s risk tolerance, needs, and investment objectives. Thus, the broker has a duty to learn about each client’s personal financial condition and goals, and to recommend investments and trading strategies suitable for that individual. An investment may be unsuitable if:
- A client lacks the financial ability to incur the risk associated with a particular investment.
- The investment was not in line with the client’s financial needs.
- The client did not know or understand the risks associated with certain investments.
Misrepresentations and Omissions - These cases often involve a broker’s failure to inform you of the risks associated with your investments. Stockbroker "misrepresentation" is simply a legal term for stockbroker "lies". At times, these cases arise from "boiler room"operations, in which teams of unscrupulous brokers make large numbers of cold calls and use high-pressure sales tactics. Under the law, even a prediction or opinion offered by an investment broker can be a fraudulent misrepresentation, when it has no reasonable basis. Common lies include claims by brokers that they know the price that a stock will reach, that their own firm controls the stock price, that they have inside information from the company, that profits are "certain", or that they are selling stock to you from a hot public offering. These statements rarely have a reasonable basis and may represent investment broker fraud.
Similarly, a broker has an obligation to tell the whole truth about a potential investment. In other words, the broker cannot promote the positive features of an investment and withhold the negative aspects or risks. Omission of material facts is a form of unlawful misrepresentation. Many types of false or misleading statements can be the basis for a claim, if an individual reasonably relied upon them in making a losing investment.
Excessive Trading or "Churning" - This occurs when a broker engages in excessive trading in your account, to generate larger commissions. When a broker buys and sells securities in your account to generate commissions that seem excessive, there is a strong possibility that your account is being "churned". However, "churning" also includes any trading done to benefit the broker - rather than the investor. Therefore, even one trade may be churning if it has no legitimate purpose for the investor. To establish that a broker churned your account, you must show excessive trading patterns. This can be done with several kinds of evidence, including:
- Calculations to determine the annualized rate of return, which was necessary to cover the commissions charged in your account.
- Number of times that the equity in your account was turned over to purchase securities.
- Purchase and sale trading activity that occurred in your account.
Unauthorized investments - This usually arises when a broker makes trades without your permission. A broker must have the express detailed permission of the client for all trades. This authority only exists when a client signed a written contract in advance, which specifically granted permission to the brokerage firm to make certain trades without prior approval. Absent this type of arrangement, a firm is required to obtain the client’s permission for each transaction. In some cases, the broker simply failed to ask a client for permission to make trades in a nondiscretionary account. In other circumstances, the broker bought stock on margin without authority, or ignored a client’s specific instructions about a discretionary account.Depending on the facts of the particular case, unauthorized trading can result in claims for rescission, breach of contract, or fraud.
Over concentration - This happens when a broker does not diversify your portfolio. One of the most important rules of investing is diversification. When a broker concentrates most or all of your funds in an individual investment or type of investment, then your risk of loss dramatically increases. If a broker did this, and the investments declined significantly, the broker may be liable. For example, if your portfolio was heavily weighted to biotechnology stocks and those stocks dropped sharply, you may have a right to compensation, based on the broker’s failure to diversify your investments and reduce your risk. Handling a stock fraud claim is a complex process. It will take an attorney considerable time and resources to gather all of the documentation, make a determination, and file the appropriate claim on your behalf. It is an undertaking that requires an attorney who is knowledgeable and skilled in working with the complicated laws and procedures that govern these actions, and in evaluating the documentation required to establish the true value of a claim.
Author: Marya Sieminski
An Inventory of State Securities Board Records at the Texas State Archives, 1933-2005
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Assistant New York Attorney General Carl Madonick, an expert in the fight against security swindlers, describes it this way: “In a recent case, a Los Angeles promoter induced New York brokers to list fictitious quotations on a stock which then … In a recent case prosecuted by New York Attorney General Louis Lefkowitz, it was found that 4000 persons in the United States and Canada had been sold $1000000 worth of stock in Texas Union Oil Corporation.
Stocks to Watch for Monday, February 9th
Court for the Western District of Texas, San Antonio Division. The main case number is 09-50456. The Company`s non-U.S. operations, which are legally separate, are not included in the Chapter 11 proceedings. Spectrum Brands has received commitments for $235 million in DIP …. investment advisor or licensed stock broker before investing. Information contained in our report will contain "forward looking statements" as defined under Section 27A of the Securities Act of 1933.
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Tags: attorney, case, claim, lawyer, Stockbroker Fraud
February 10th, 2009 at 5:17 pm
[...] Fraud stars have benefited much from the internet revolution. Securities scams have become rampart and they have reached epic proportions. Along with the normal precautions, one needs to familiarize oneself about the methods of fraud deterrence in stocks. This has become important part of the syllabus of share business. Millions of dollars are cleverly siphoned off from the gullible investors through clever means. [...]