Broker Misconduct
There are numerous ways in which a stockbroker, like an insurance agent, and an investment advisor, can violate legal and ethical obligations to his or her customer. And bear in mind that in most cases of broker misconduct, the broker's employer, often a large brokerage firm, will be obligated to pay the damages. At Hermann, Cahn & Schneider, our attorneys have experience representing brokerage houses. Because we know the industry from the inside, we are well positioned to assist you. To discuss your circumstances, please contact a securities arbitration lawyer at our office in Cleveland, Ohio, today.
The most common types of broker misconduct are:
- Recommending Unsuitable Investments: A great investment for one person might be a foolish investment for another. Each investor has his or her own unique set of circumstances. A 40-year old unmarried surgeon should probably invest very differently from a middle-class parent planning for her kids' college years. A 70-year old retiree on a pension should not invest in the same way as a wealthy 70-year old business owner who is still working. Stockbrokers have the duty to know their customers and to ensure that each recommended investment is suitable for that customer in light of factors such as the customer's age, financial status, ability, and willingness to handle risk, investment knowledge and experience, and investment objectives. If you lost money in an unsuitable investment, the broker may be responsible, and a qualified Ohio stockbroker misconduct attorney may be able to help you recover part or all of your losses.
- Misrepresenting or Omitting Facts: Some brokers lie about things you need to know in order to properly decide whether to invest. Some brokers don't lie, exactly, but they withhold certain facts that might affect your investment decision. And some brokers who misrepresent or omit facts are simply careless. Whether the broker's misrepresentation or omission is fraudulent or simply negligent, if it caused you to make a poor investment, the broker may be liable for your loss.
- Excessive Trading or "Churning": Remember that any broker who is compensated by commissions earns those commissions whenever you buy or sell, and whether you make money or lose money. When a broker who has discretion to control the investments in your account engages in excessive trading in order to generate commissions, that's churning, and churning is fraud. Your broker can be sued for churning your account.
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- Engaging in Unauthorized Trading: In most instances, a broker is permitted to buy or sell a security only after receiving your permission to do so. But sometimes, brokers engage in unauthorized trading. Unless you have given the broker the right to exercise his or her own discretion in handling your investments, unauthorized trading constitutes a breach of the broker's fiduciary duty and a violation of your rights. The unauthorized trades can be voided and resulting losses can be recovered from your broker.
- Failing to Follow Instructions: A broker usually is obligated to follow the instructions of the customer with respect to buying or selling a stock. If you instructed your broker to buy or sell a stock and he or she failed to do so, the upward or downward movement of that stock might cost you a lot of money. In some instances, the broker will not necessarily ignore your instructions, but for his own benefit rather than yours, might pressure you to hold the stock you originally instructed him to sell. Failure of a broker to follow your instructions, and even improper pressure to change your instructions, can be grounds for recovering your loss.
- Price Manipulation: Manipulating the price of a security is a violation of State and Federal securities laws and the Rules and Regulations of the National Association of Securities Dealers. Brokers manipulate prices by artificially increasing or decreasing the price of a security to generate profits. They often do this by falsely promoting an investment through high-pressure sales strategies to make it seem more valuable than it really is. This drives the price of the security up and allows the broker to sell shares they previously purchased at substantially lower cost. Many times, when brokers manipulate the price of a security, they will refuse to allow an individual to sell their security, so this should be a red flag if it happens to you.
- Misappropriation and Other Criminal Activity: Occasionally, a broker will engage in plainly criminal acts like theft, fraud, and forgery. In essence, the broker hatches a scheme to steal your money. Often this scheme will involve what is known as "selling away," meaning the broker's investment activities are being done on the side and are not being reported to or approved by the brokerage firm that employs him or her. Brokers have even been known to sell investments that don't exist. You have the right to seek recovery for any fraudulent conduct that results in misappropriation of funds by a broker.
- Over-concentration: A broker generally has the duty to recommend that the customer’s account be diversified among different investments, investment classes, and industries. Proper diversification is one of the best ways to control risk and avoid excessive losses. If a broker concentrates too much of your portfolio in one type of investment, (such as stocks), or puts too much of your money in only one or two different stocks, or buys too many stocks in the same industry, you face a much greater risk of suffering a large loss. For instance, millions of investors lost money beginning in early 2000 because their brokers had over-concentrated their accounts in high-flying technology stocks that plummeted en masse. A broker who fails to recommend a properly diversified account can be liable for some or all of your losses.
- Mutual Fund and Variable Annuity Sales Abuses: There are many ways in which brokers betray their customers through the sale of mutual fund shares and variable annuities. For instance, brokers will sometimes switch customers from one fund or annuity to another, at great cost to the customer, for the sole purpose of earning commissions. They will sell variable annuities to customers who shouldn’t own such annuities, again in order to earn high commissions. The desire for high commissions also can prompt unscrupulous brokers to sell what are known as Class B mutual fund shares to customers who would have qualified for the price breaks available from Class A shares. Brokers who engage in these and other violations involving mutual funds and annuities are guilty of sales abuses that may subject them to liability.
WARNING- Deadlines apply to all of these rights of recovery. Delay can result in your claim being time-barred, or in a particular forum refusing to hear your complaints. But these deadlines are complicated. Don't procrastinate in seeking qualified legal assistance. Likewise, don't give up because you assume you've waited too long. Tony Hartman, Jay Salamon, Hugh Berkson, Henry Kerr, and Jane Conrad are lawyers at Hermann, Cahn & Schneider who exclusively represent clients hurt by the misconduct of investment professionals such as stockbrokers. Ask us to look at your case. We'll let you know for sure.
The Next Step: Arbitration or Court?
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