It takes a great deal of trust to invest with a stockbroker. You do so with the hope that the broker will manage your money wisely and responsibly. Yet, sometimes this trust is breached when stockbrokers commit fraud or act negligently.
In cases of fraud and negligence you may be able to sue to your stockbroker.
Licensed by the Securities and Exchange Commission (SEC) to trade stocks, brokers and the firms they work for are bound to the rules of the SEC, the Financial Industry Regulatory Authority (FINRA), and both federal and state laws. While there are several ways to violate the rules, some of the most common types of fraud and negligence are are outlined below.
Failure to provide full and accurate information
Your advisor may not provide you with false or misleading information, to induce you to purchase an investment product. In fact, doing so may be considered an act of fraud.
In September 2017, the SEC brought fraud charges against a New York ex-broker, who had targeted retirees with a promises of high returns on their investments. Though barred since 2000 from brokering due to other acts of fraud, from 2011 to 2015 Leonard Vincent Lombard cheated investors out of $6 million by providing false claims of profitability on real estate investments and investments made in an e-cigarette company.
Investors may not forge documents
No surprise here. It is illegal to forge documents.
Yet, fraudsters often commit forgery to make his or her schemes seem more credible. A judge in New York recently sentenced an Israeli citizen to a 36 month prison stint for lying to potential investors about his company’s, Golden Bridge FX, expertise in FOREX markets. Clients and prospective investors were sent forged “guarantees” from top New York banks that attested to the success and reliability of Golden Bridge FX.
No churning allowed
Churning occurs when brokers buy and sell stocks in quick succession, over a short period of time. In these instances the investor loses money, while the broker receives commission.
Brokers often engage in “unauthorized trading” while churning. Unless an investor has given consent to the broker or advisor to trade at will, he or she must seek permission before making trades.
Brokers may not make unsuitable recommendations
When making investments on behalf of an individual a broker must act according to the overall objectives of the investor. If someone wants to follow a more conservative investment strategy, the broker may not recommend investments that are of higher risk. Brokers also may not invest their clients’ funds irresponsibly.
Wells Fargo advisor, John Bradford Leonard (known as Brad Leonard), came under fire in 2016 when Ohio residents filed a FINRA claim against him. Those that had invested saw devastating losses to their retirement accounts, due to an overconcentration of money–over 70%– channeled into oil and gas stocks. The suit also alleged that Wells Fargo failed to supervise their financial adviser.
Proving negligence or fraud
It can be tricky to demonstrate that your financial adviser has acted illegally or without regard to your best interest, particularly when it is a matter of proving that your broker made unsuitable recommendations.
Keep a record of all communications with your adviser. This includes all emails, letters and contracts regarding investments. If you tend to speak with your broker in person or by telephone, it may be helpful to make a note of the date and time of the conversation and note what was discussed.
Filing a FINRA claim in cases of fraud and negligence is a challenging matter. A reputable business and litigation lawyer can help navigate this complicated area of the law.
If you are an investor and believe you may be the victim of fraud or negligence, you may be able to sue your stockbroker. Contact Fishman Haygood to learn what actions you can take.