Can I Sue My Broker and Brokerage Firm? | Chicago Securities Fraud Attorneys Investment Arbitration Law Firm

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Sunday, August 15, 2010

Can I Sue My Broker and Brokerage Firm?

Yes! The amount you may recover depends upon the investor, the activity and/or the product or investment. My law firm has represented close to 1000 defrauded investors in lawsuits and FINRA arbitration actions against brokerage firms and registered investment advisors in the last 11 years. Unfortunately, the 2008-2009 market crash exposed fraudulent sales practices at dozens of brokerage firms. Billions of dollars of investments were fraudulently peddled to the elderly, retired, near retired or investors who were not willing to gamble or speculate. Unfortunately, these investors took the brunt of the economic hit after the largest economic crime spree in U.S. history perpetrated by Wall Street banks and brokerage firms.

There are 4 major questions we ask when attempting to help an investor determine if they can successfully sue their stockbroker, brokerage firm or registered investment advisor...

The first question we ask when determining whether we can recover the clients investment fraud losses is what type of investment was recommended. Some investments were fraudulently marketed by the brokerage firm selling them and therefore most of the clients who purchased the product would have an actionable securities fraud arbitration action. For example, dozens of brokerage firms recommended Medical Capital, DBSI, Striker Petroleum, Cornerstone Industrial Properties, MAT 3, IMH Secured Loans and Provident Royalties/Shale Royalties. We have reviewed marketing material and secured in discovery internal emails that cause us to believe the true risks of these investments were not disclosed. For example, Securities America clients who purchased Medical Capital were not told the company was "investing" in Internet pornography companies and a yacht as well as medical receivables.

The second question we ask is who the investor is. In conversion claims, selling away cases, theft or ponzi schemes or even product cases like Fannie Mae and Freddie Mac or leveraged exchange traded fund cases, the profile of the investor is not very important. We've successfully represented in FINRA arbitration causes and lawsuits individuals worth over $100 million, successful entrepreneurs, professional athletes and others who have a high degree of sophistication or financial resources. Regardless of a client's sophistication, they are entitled to full, fair and complete disclosure and not to be defrauded through investments.

The third question we ask is what type of claim the investor has against the firm. There are approximately nine common causes of action we make in lawsuits against brokerage firms. These actions include the following:

Breach of Contract: A breach of contract claim is usually based off of the new account agreement. Clients at every brokerage firm in the U.S. and most registered investment advisors are required to sign a new account agreement when they open an account. These agreements usually mandate and require that the brokerage firm handles the account in accordance with the rules and regulations of the securities industry. These include the FINRA Conduct Rules like the requirements to make suitable investment recommendations and not to churn a client's account.

Negligence: These claims are based on the duty of the brokerage firm and the client to exercise due care in connection with the account comparable to other financial professionals in the same position. A classic claim we have made is the failure of the financial advisor to asset allocate and diversify a retired client's account. Often the advisor will concentrate the client's account in all equities and not allocate anything to fixed income investments like government bonds, CDs and other conservative investments.

Failure to Supervise: The failing to supervise a financial advisor is extreme common. Unfortunately, supervision is not a money making activity for brokerage firms. Therefore, while brokerage firms give lip service to the importance of supervision, usually there is little to no real supervision of financial advisors. For example, reasonable supervision requires a branch office manager to close an account down if the broker is recommending trading that is so aggressive and speculative, it all but guarantees the client's account loses money. Since the firm and the branch office manager earn part of the churned fees, there is little incentive for a supervisor to close an account down. Typical supervision at brokerage firms means the firm will send a few generic happiness letters to try to cover the firm in case the client files an arbitration claim.

Failure To Execute: Brokerage firms and advisors are required to carry out a client's order. Sometimes the broker will forget to enter an order. Other times the advisor may disagree with the order and simply not put it in, possibly because he wants to get his preferential clients, or even himself, out first.

Breach of Fiduciary Duty: In some states, every broker at every brokerage firm owes a legal fiduciary duty to a client (California). In other states, courts have concluded if a client reposes "trust and confidence" in the broker, then he is a fiduciary (Illinois). Each state has different laws on whether a broker is a fiduciary or not. As a fiduciary, brokers and investment advisors have several obligations. First, he must asset allocate and diversify a client's accounts. Second, he must manage accounts in a manner directly in line with the needs and objectives of the customer. Third, the fiduciary must keep abreast of all changes in the market, which could affect his customer's interest, and they must act responsively and sensibly to protect those interests. There are many other duties of a fiduciary but these are the most common.

Misrepresentations and Omissions: All material risks must be disclosed to clients and a broker cant misrepresent material risks to clients. Classic misrepresentations and omissions in securities fraud suits include the following: Touting the stock of a company as a “guaranteed investment” or "secured" when in fact it isn't; Failing to disclose the degree of risk associated with an investment; and making overly positive or optimistic statements about an investment.

Churning or Excessive Trading: Churning and excessive trading is prohibited under most state securities act. While there are differences between churning and excessive trading, the hallmark of both is trading designed to generate fees and commissions for the broker and brokerage firm. We have written extensively on churning and excessive trading claims. For more information visit our related website at www.churningfraud.com

Selling Away and Ponzi Schemes: Unfortunately, brokers and financial advisors have engaged in hundreds of ponzi and selling away schemes at virtually every major and regional brokerage firm. We have written extensively on these topics. For more information on these sorts of claims, please visit our related website at www.ponzirecoverycenter.com

Selling Away and Ponz Schemes: Brokerage firms, brokers and registered investment advisors have a duty to make appropriate and suitable investment recommendations. Each state defines what is a suitable recommendation differently. Classic unsuitable recommendations? 1) The sale of speculative, high risk stocks to a retired investor or a client with limited financial resources; 2) Concentrating an investor's portfolio in one or a few securities or types of securities; 3) Failing to asset allocate a client's portfolio; 4) Utilization of margin for a client with limited financial resources.

The forth question we ask is whether the client should sue in court, in arbitration or partake in a class action lawsuit. We have written extensively about the class action lawsuit scam in the past and wont rehash those points here. But in instances were the client has lost more than $50,000, an individual arbitration claim or lawsuit usually makes the most sense.

One of the most common questions we get from people who believe they may have a valid securities fraud clam is whether they have to file an arbitration claim at FINRA (Financial Industry Regulatory Authority), JAMS (Judicial Arbitration and Mediation Services), AAA (American Arbitration Association) or a lawsuit in court.

Most brokerage firms and registered investment advisors have a binding arbitration clause in the new account agreement they require the client to sign prior to opening a brokerage account. The brokerage firms and registered investment advisors listed below all require clients to have any dispute heard through binding arbitration. While binding arbitration has been criticized by some, usually arbitration is faster and cheaper than court house litigation. For example, it is not uncommon for class action lawsuits to be tied up in court for 60 months or longer. Arbitration claims usually take twelve to fourteen months.

Ameriprise Financial Services, LPL Investment Holdings, LPL Financial, Uvest, Raymond James Financial Services Advisor Group, Zachs, FSC Securities Corp., Royal Alliance, SagePoint Financial, Commonwealth Financial Network, Cetera Financial Group, Financial Network Investment Corp., Multi-Financial Securities Corp., PrimeVest Financial Services Inc., Cambridge Investment Research Inc., Securities America, Advanced Equities, JP Morgan, Wells Fargo Advisors Financial Network, Northwestern Mutual, Lincoln Financial Network, National Planning Holdings, Invest Financial Corp., OptionsExpress, Investment Centers of America Inc., National Planning Corp., SII Investments, MetLife Broker-Dealer Group, MetLife Securities Inc., New England Securities Inc., Tower Square Securities,Walnut Street Securities, NFP Securities, H.D. Vest Financial Services, Axa Advisors, First Allied Securities, Securian Financial Services Inc., Genworth Financial Securities, Waddell & Reed, ING Financial Partners, Ladenburg Thalmann Financial Services Inc., Investacorp, Triad Advisors, Geneos Wealth Management, Next Financial Group, Merrill Lynch, Lincoln Investment Planning, PlanMember Securities Corp., VSR Financial Services, John Hancock Financial Network, Park Avenue Securities, Securities Service Network, Princor Financial Services, NYLife Securities, Woodbury Financial Services, Cadaret Grant & Co, United Planners Financial Services, Ameritas Investment Corp, Sigma Financial Corp., QA3 Financial Corp, ProEquities Inc., American Portfolios Financial Services, Investors Capital Corp, Capital Financial Group Inc./H. Beck Inc, Equity Services, Hornor Townsend & Kent, National Holdings Corp., National Securities Corp., vFinance Investments, Pacific West Financial Group, Kovack Securities, Robert Baird, Centaurus Financial, Independent Financial Group, Summit Brokerage Services, Prospera Financial Services, Edward Jones, Stifel Nicolaus, J.W. Cole Financial, Girard Securities, Ensemble Financial Services, Spire Investment Partners, Berthel Fisher and Company Financial Services, WRP Investments Inc., Wall Street Financial Group, Crown Capital Securities, CFD Investments, M Holdings Securities, LaSalle St. Securities, TFS Securities, Questar Capital, Harbour Investments, J.P. Turner, Coordinated Capital Securities, IMS Securities Inc./IMS Financial Advisors, Sammons Securities Co, The O.N. Equity Sales Co, Wachovia, Great American Advisors Inc., GBS Financial Corp.

Some recent FINRA arbitration awards illustrate the range of outcomes investors can expect.  In any given year, FINRA arbitrators award nothing to hundreds of investors.  Though reasoning isnt usually provided by the arbitrators, there are many reasons why a customer might receive a "zero" in the finra process.  There are also hundreds of cases each year where clients get all of their money back and sometimes more.  For example, in FINRA case 12-04191 (Negotiart of America v. Ascendiant Capital Markets) the FINRA arbitrators awarded the requested compenatory damages ($437,603) as well as $10,000 in punitive damages and interest.  According to the arbitrators, the panel found "by clear and convincing evidence that Sean Spearman...committed acts of fraud and malice in their dealings with Claimants" and...Sean Spearman was not truthful at the hearing." 

Injured investors should contact a lawyer to discuss whether they might have a valid arbitration claim against a brokerage firm. While most brokers and advisors do not violate the law, unfortunately a sizable minority do. Most securities lawyers or law firms will provide a free initial evaluation. My law firm almost exclusively takes cases on a contingency fee basis. This means the client is not responsible for our attorney fees if we don't win and recover.

To learn more about suing to recover investment losses, please contact our law firm in Chicago, Illinois.

10 S. LaSalle, 35th Floor
Chicago, IL 60603
312.332.4200
Andrew@stoltlaw.com