Securities Fraud FAQs

What are the duties that my stockbroker owe to me as a client?

Brokers and brokerage firms owe a duty of care and loyalty to all of their clients. Stockbrokers must use the standard of care and diligence needed to protect the customer's best interests. Failure to fulfill that duty may constitute negligence or malpractice by a broker. A source for potential conflict tends to arise given the brokers' typical method of compensation through commission. This may tempt some brokers to churn the account to generate more commissions for them.

A broker also has a duty to follow the instructions of their clients and to execute orders promptly at the best available price. Typically a broker may trade only after receiving authorization from the customer.

Brokers have a duty to disclose all material facts relating to proposed investments and may not make any misrepresentations. Specifically, a broker has a duty to disclose any material risks of any proposed investment. A brokerage firm also has a duty to reasonably supervise their representatives in order to enforce compliance with securities laws.

What happened to my money that was invested in stocks and other securities?

Many times investors do not realize what has happened to their account. Most victims of securities fraud do not realize that they have been defrauded until after the fact. Confusing account statements and patterns of trading which the customer does not understand, coupled with sudden changes in the value of the account, may be a sign of securities fraud.

How do I know if I have been the victim of securities fraud?

Often investors will not know if they have been defrauded until they consult with a professional. An accountant or tax return preparer may see signs of trouble when reviewing the trading in the account. Problem signs for an investor to be aware of include:

-Inconsistency between the broker's statements and the performance of the investments
-Misrepresentations by the broker
-Trading securities that the client cannot understand
-Frequent and excessive trading in the account
-Trading in high risk, speculative or unsuitable investments
-Unauthorized stock trades
-Failure of the broker or company to be responsive to complaints
-Repeated promises by a broker to make up for losses

What can I do if I am a victim of securities fraud?

If you think you may be a victim of securities fraud you should take action to protect your legal rights. First you should stop all trading by the broker in the account until the concern is resolved. You may write a letter of complaint to the broker and the broker's supervisor. It may be advisable to consult with a qualified securities fraud attorney and to have the account documents reviewed by a professional in order to determine whether if you have been a victim of securities fraud.

How are my stock losses calculated?

There are a number of different methods for calculating damages. In general, if you prevail on the merits of your claims, you may receive an award of your out-of-pocket losses. The calculation of damages may be computed based upon just the particular wrongful trades or on the overall performance of the portfolio, and it may also include compensation for what the account should have generated in income or growth absent the broker's wrongdoing.

Do I need a securities fraud attorney?

Investors may present their claims in arbitration without being represented by an attorney. There is no requirement for legal counsel and some arbitration forums offer simplified arbitration procedures for smaller claims. However, the broker and brokerage firm will have their lawyers giving you a disadvantage in presenting complex legal arguments without the benefit of counsel.

It is generally advisable to consult with a qualified securities fraud attorney and to have the benefit of legal counsel in preparing and presenting the claims on your behalf. An experienced securities fraud lawyer may frequently be able to negotiate a settlement.

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.

Attorney Marya Sieminski joined the Law Offices of Sam Bernstein in 2003. She is admitted to practice law in Michigan state courts and in the U.S. District Court for the Eastern District of Michigan. She earned her Bachelor of Science degree at the Massachusetts Institute of Technology and graduated magna cum laude from Wayne State University Law School. Marya has worked as a trial lawyer for 10 years and exclusively represented victims in personal injury litigation and in workers compensation claims. She also was appointed by the Governor to serve on the State of Michigan Workers Compensation Qualifications Advisory Committee.

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Investment Fraud Law

The Banks Law Office, P.C. is a premier national law firm and investment fraud law firm, representing investors in NASD arbitration and court litigation to recover money that was wrongfully taken.

Robert S. Banks, Jr. was the 2005-2006 President of the Public Investors Arbitration Bar Association, a national bar association of securities arbitration attorneys. Mr. Banks has received the highest ranking from Martindale Hubbell for more than 15 years. He is listed in the best lawyers in America by Chambers & Partners. He is also included in Oregon Super Lawyers, a distinction reserved for 5% of all attorneys in that state. He has been an advisor to the NASD on securities arbitration. He is a past president of the Federal Bar Association, Oregon Chapter. He has written many articles and taught many seminars for lawyers. His clients have been awarded some of the largest NASD arbitration awards in Oregon. And, his investment fraud cases have broken new ground, establishing investor rights that did not previously exist.

The firm has recovered investment losses for clients totaling many millions of dollars–investment savings that would have been lost forever if it were not for our efforts.

For a free initial evaluation, email a brief summary of your case, including your name, the dates and amounts of loss and a summary of the conduct you believe was improper to info@bankslawoffice.com. We will respond within one business day. Your inquiry does not create an attorney client relationship until we accept your case, but it will be treated as confidential.

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