Stock Broker Fraud
When a broker, advisor or investment firm is negligent in their duties or acts in bad faith, your portfolio and your future plans can be ruined. Years of hard work and savings can be wiped out because your broker or advisor hasn’t honored their duties. Don’t let your broker’s or advisor’s negligence cost you.
At Haslkorn & Thibau, we know how to help protect investors. In any negligence claim or legal proceeding, we have the knowledge, experience, and resources to help. Our attorneys are former licensed brokers and defense lawyers. That experience gives us inside knowledge about regulatory matters and how brokers or advisors try to defend negligence claims.
We proudly offer the services and resources of a large law firm with the personal attention of a small law firm. We’ll work with you to investigate your claim and prepare a strategy for a successful recovery. Our track record includes millions of dollars recovered for our clients from some of the largest Wall Street firms.
The Investment Loss Recovery Group helps investors pursue justice and recover their losses. If you suspect your broker, advisor or their firm has been negligent, we want to help you. Contact us now for a free consultation.
What Is Stockbroker Fraud?
Negligence is when individuals fail to fulfill their duties or take the proper amount of care in an activity. Negligence can happen anywhere and in any field. The financial sector and the investment industry are no exceptions. When investment professionals are negligent in the performance of their duties, investors can suffer unacceptable risk, serious losses, and disruption of their investment strategies.
Negligence is different from obvious fraud in that brokers or advisors may fail their clients and cost them money without intending to do so. For example, an investor may fail to give a client important information about an investment. Sometimes this is due to fraud where a broker or advisor intentionally omits information. Sometimes it is due to negligence. For example, a broker might fail to give investor information because the broker neglected to gather the information they should have.
Negligence and fraud claims are two different types of claims with different standards of proof. Whether an investor brings a negligence claim or a fraud claim will depend on the facts of the situation and the broker’s or advisor’s duties. It can be complicated to understand which type of claim applies. An experienced lawyer at the Investment Loss Recovery Group can help investors understand what claims may be brought against a broker.
How Do You Prove Financial Advisor Fraud or Negligence?
Broker negligence claims can be challenging to prove. Sometimes, it’s clear that a broker or advisor has breached their duties and failed a client. In other cases, broker negligence may be subtle and spread out across the years. When an attorney investigates a negligence claim, we can comb through the entire record including communications, portfolio composition, and portfolio performance to find evidence of negligence.
In any negligence claim, the person bringing the claim must show the following elements:
- A duty existed between the parties. The person bringing a claim must show that the negligent party owed them a duty. In a broker and investor relationship, the broker may owe the investor a number of duties. Examples include fiduciary duties, duties to perform due diligence, and duties to provide suitable investment opportunities for their clients among others. Documents showing the existence of a formal relationship between an investor and a broker may be used to prove these duties.
- The duty was breached. Brokers breach their duties when they fail to live up to the proper standard of behavior. If they don’t do the required due diligence, don’t offer suitable investments, and otherwise fail to fulfill their duties, they have breached them. To prove a breach, an investor will need to show the action, or lack of action, that resulted in a violation of duties.
- The breach of duty caused damages. A breach of duty alone isn’t enough to bring a claim for damages. An investor must show that the breach harmed the investor. For example, let’s say a broker fails to do due diligence on an investment opportunity. An investor invests in the opportunity and loses money. If the investor can show the broker’s due diligence would have prevented that loss, then the broker may be liable for the investor’s loss.
- Damages resulted from the breach. The last element an investor must prove is that damages resulted from the broker’s breach of duty. For example, if an investor loses their investment or their portfolio plummets in value as a result of the broker’s negligence, then the investor may be able to recover.
What Are Common Forms of Broker Fraud?
A breach of fiduciary duty is a common form of negligence. When a broker or advisor takes on a relationship with an investor, they are taking on responsibilities including legal duties to represent an investor and their interests. These duties may include:
- A duty of loyalty. The broker should put their client’s interests before their own. This means no double-dealing or other illegal and unethical behavior that could harm the investor. When a broker lives up to their duty of loyalty, it means that they’re looking out for the investor’s interests instead of their own.
- Due diligence and disclosure. Brokers are required to perform a thorough review and analysis of investment opportunities, then disclose any risks to an investor. When a broker fails to perform this analysis or relay important information about an investment, they may be breaching their duties to an investor.
- The duty to give honest advice free from conflicts of interest. There are many situations where an investor’s interests and a broker’s interest may be at odds. Commissions, fees, and other hidden incentives can tempt brokers to give advice that furthers their interests at the client’s expense. A broker should be clear about any conflicts and provide honest advice that helps the investor.
A brokerage firm is required to supervise its employees. This helps ensure that a firm’s employees are acting ethically and within the bounds of the law. When a firm fails to provide adequate oversight and review of their employees, they may have breached their duties to supervise.
Regulators have put stringent rules in place that require firms to monitor the communications and activities of their employees. These rules are an essential part of financial industry practices. They help protect investors from brokers and other employees who may be negligent or engaged in fraud. When employees are negligent, it may be because their firm has not adequately supervised them.
Regulators want to make the investment industry safe and reliable. To do this, they’ve put many rules and regulations in place to protect investors. These regulations govern nearly every aspect of the investor and broker relationship. This includes the duties of the broker to their clients, limits on fees brokers can collect, documentation requirements, and how firms should build their policies to protect their clients.
Brokers and firms are required to understand and implement regulations promulgated by the SEC and FINRA. If they fail to, they may be negligent.
Brokers have duties to provide honest and thoughtful advice to their clients. Sometimes, however, they fail to do this, and their clients are harmed as a result. When a broker misrepresents facts or omits facts related to an investment, they may be negligent in their duties.
Misrepresentation is an illegal and unethical activity where brokers and firms may misrepresent material facts about an investment. This misrepresentation may be intentional fraud, or it may arise as a result of poor analysis and neglect. For example, firms and brokers may provide inaccurate information and estimates of risk for an investment. They may also misrepresent the potential performance of an investment. If you’ve been harmed by misrepresentation, it’s important to understand why the misrepresentation took place and what options you have for recovery.
Omission is when material facts about an investment are not provided to a client investor. This could happen because of fraud, or it could happen because brokers and firms have failed to gather the information they’re required to. When investors are not provided with the facts they need to invest wisely, they may suffer risk and losses.
Overconcentration of Investments
Overconcentration means that an investor’s portfolio relies too heavily on one company, one location, or one section of the economy. Overconcentration can arise from a broker’s neglect and lack of appropriate investment procedures at a firm.
An overconcentrated portfolio relies on a narrow set of securities that are related. That means that the portfolio is susceptible to huge fluctuations when a particular company or economic sector is hit. Brokers typically should avoid overconcentration because it can lead to huge risks and losses for an investor. When a broker or firm allows an investor’s portfolio to become overconcentrated it may indicate negligence.
Unfortunately, it can be challenging to determine if a portfolio is overconcentrated. If your portfolio is experiencing wild swings even when the market is stable, your portfolio may be overconcentrated.
Can a Firm Be Held Liable for a Broker’s Fraud?
In many cases, the answer is ‘yes’. Under U.S. Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA) rules, firms have duties to monitor and supervise their brokers. Firms must look out for the interest of clients by creating an environment where client interests are protected.
Firms have many tools that they’re expected to use to protect clients. These include audits, regular reviews by experts, automated tools to monitor portfolios, and stringent requirements on firm policies and procedures. If a firm fails to adequately train and supervise their brokers and other employees, they may create an environment where negligence flourishes.
Any recovery in a negligence claim will depend on the facts of the situation. Our lawyers can help review your case and determine if there was more than broker negligence involved.
What If You Suspect Broker Negligence?
If you suspect broker negligence, it’s important to take action now. The longer you wait, the more you and your investments may be at risk.
Brokers are required by law to communicate with their clients about their investments and provide honest, thoughtful advice. If you’ve experienced lapses in communication, suffered unusual swings in the value of your portfolio, or otherwise suspect that your broker is negligent in their duties, the following steps can help:
- Collect any communications from your broker and any documentation you have about your investments. Negligence can be hard to spot, but the decisions and communications of your broker can provide valuable information about the work your broker has done (or has failed to do).
- Gather information about how your investments fit into the overall market. There’s no such thing as risk-free investments, but if your investments are out of line with where they should be, it may be a sign that your broker is negligent.
- Contact a lawyer who concentrates on broker and firm negligence. Many complex rules and documentation requirements go into investigating and proving a negligence claim. A lawyer can help you understand whether negligence may have happened, and if so, how you can recover.
Stockbroker Fraud and Negligence Can Cost You. We’ll Fight For You.
When a broker or advisor is negligent in their duties, they can expose investors to extreme risks and losses. It’s important to understand how the broker should have acted according to the law compared to how the broker actually acted in the context of your investments. If your investments have suffered or failed to grow while the rest of the market has climbed, broker negligence may be involved.
The Investment Loss Recovery Group has worked with investors to fight negligence. With nearly 40 years of legal experience, we know how to investigate claims and identify broker and advisor negligence. Proving negligence can be complex and time-consuming, but our attorneys have the experience and resources to get the job done successfully.
If you think you may have been harmed by a broker’s, advisor’s or firm’s negligence, the sooner you take protective measures, the better. Our experienced broker negligence attorneys can help you understand what happened and help you develop a strategy to recover your losses. Contact us today for a free consultation.
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