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The Claims Process
Investor Information

Do You Have a Claim Regarding Your Investment?

Markets and investments can go up and down. Most investment losses result from these market fluctuations, and not misconduct. It is critical, however, to know the difference. If there is any question at all, ask us for a free consultation, or ask a friend or family member who is more knowledgeable than yourself to review the investment. Most reputable investment professionals want you to be informed, and welcome having someone else help to explain the investment in question. On the other hand, if you are being taken advantage of, the perpetrator is likely a good talker and will try to convince you that they have done nothing wrong, that the loss was out of their control.

Here are the most common types of investment misconduct:

Each of these is briefly discussed below, but the bottom line is that if you are unsure about why a loss has occurred, ask questions.

Misrepresentations and Omissions

Federal and state securities laws make it unlawful for anyone to make misrepresentations or omissions in connection with the sale of a security. Brokers, investment advisors and financial planners must have a reasonable basis for the statements they make, and assurances or promises made without a reasonable basis may be actionable. For example, there are few sure things when it comes to investing, and a broker that tells you that a stock is definitely going up or that he will guarantee a 20 percent return on your investment is making a misrepresentation. Likewise, brokers must provide the investor with all material information known to the broker about a potential investment, including the fees involved and the degree of risk one should expect from the investor.

Unsuitable Recommendations

Brokers, investment advisors and financial planners have a responsibility to “know” their customers and to make recommendations that are suitable for the customer’s needs in light of the customer’s circumstances and investment objectives.

The most prevalent examples of unsuitable recommendations relate to excessive risk, over-concentration, illiquidity and tax considerations. It is simply unsuitable for a broker or investment advisor to recommend a risky investment to a customer who is seeking conservative investments or cannot afford significant losses. It is often unsuitable for a broker or investment advisor to recommend a portfolio that is over-concentrated in a small number of stocks or in one asset class or a portfolio that is highly illiquid. In addition, brokers and financial advisors must take into consideration the tax implications of a recommendation for the customer.

Inappropriate Use of Margin

Brokerage firms and their brokers are required to inform customers concerning the potential risks involved in the use of margin (borrowing using securities as collateral, usually to purchase additional securities) and to have customers sign a margin disclosure document prior to implementing any margin transactions in an account. All too often, brokers allow or encourage customers to take on too much margin debt, resulting in losses that are far greater than they should have been.

Excessive Trading

Excessive trading, commonly called churning, is essentially what it sounds like: too much trading in a customer’s account over which a broker or financial advisor exercises control. A broker or financial advisor is deemed to have control over an account if the broker or advisor has discretion to trade for the customer, or the relationship between the customer and broker or advisor is such that for all practical purposes the broker or advisor is deciding what to buy and sell.

Unauthorized Investments

Unauthorized investments are again what they sound like: a broker or advisor making trades on your behalf without your prior authorization. A customer has a claim against the broker, advisor or their firm if the customer loses money on an unauthorized transaction. Even if a customer grants a broker or advisor discretion to trade on their behalf, the broker or advisor must follow whatever general guidelines have been set up, such as the customer’s desire to maintain a conservative portfolio.

Failure to Execute

A broker or advisor has an obligation to follow the customer’s instructions with respect to transactions in the account. If a customer calls the broker or advisor and asks them to buy or sell a particular security, the broker or advisor has an obligation to carry out those instructions in a reasonable and timely fashion. If the broker or advisor fails to do so, the customer may have a claim for any losses incurred as a result of the failure to execute.
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