Misrepresentation or Omission of Facts by a Broker or Advisor

When stockbrokers or investment advisors present you with an investment opportunity, they are required by state and federal law to provide you with all the relevant facts necessary for you to make an informed decision about whether or not the investment is for you. 

Unfortunately, some financial advisors are unscrupulous and may intentionally misrepresent the facts or fail to provide you with important information.  

Whether the advisor intentionally misrepresented or omitted facts, or was simply negligent in not providing you the correct information, you may have a claim against them for fraud or misrepresentation and collect damages for the money you lost by relying on the information they did provide you.

Misrepresentations and Omission Examples

There are a number of different ways brokers may misrepresent facts or fail to provide their clients all the information they need to make informed decisions. A few examples include:

  • Brokers fail to inform their clients that an investment is unduly risky. If so, they have breached their duty to provide all the relevant facts the investor needs to make an informed investment decision.
  • Brokers lie about the expected future performance of a particular investment.
  • Brokers provide their clients what appears to be a glowing research report about the potential of an investment in a particular company, knowing full well the company is headed for bankruptcy.
  • Brokers take advantage of the elderly by not disclosing all the fees related to an investment like an annuity and clients later discover their retirement assets are frozen for a period of time that outlasts their life expectancy.

A broker or advisor may engage in financial misrepresentation for a number of reasons. In some situations, an omission of facts can be chalked up to carelessness or a failure to perform sufficient due diligence. In other cases, the omission of facts was intentional, usually with the goal of generating more commissions and fees.

Whatever the underlying reason may be, an omission of facts can be a form of investment fraud – just as it would be if your advisor or broker actively lied to you about an investment. A securities fraud attorney can evaluate the facts of your claim to determine if you can pursue legal action against the broker or advisor to recover your losses.

Fraud By Omission

In some cases, an omission of fact is so significant that it rises to the level of fraud.  Fraud claims can be difficult to prove, and require great care as they are being litigated.

As a general rule, you will need to prove the following for a fraud by omission claim in court:

  1. The stockbroker or financial advisor either concealed or knowingly failed to disclose a material fact;
  2. They had a professional responsibility to disclose that fact;
  3. They omitted the fact in order to induce you into taking action;
  4. You actually relied on these inadequate disclosures; and,
  5. You suffered damages (financial harm) as a result of the misrepresentation or omission.

The elements of a fraud by omission case may vary slightly based on where the case is brought. For example, in Ohio, a plaintiff asserting a fraud claim in court must prove that the defendant :

  1.  Either made a representation or concealed a fact when there was a duty to disclose; 
  2.  The fact was material to the transaction at hand; 
  3.  The representation or omission was made falsely, with knowledge of its falsity or such utter disregard and recklessness as to its truth that knowledge may be inferred; 
  4.  The representation or omission was made with the intent to mislead the plaintiff to rely on it; 
  5. The plaintiff justifiably relied on the omission; and,
  6.  The plaintiff suffered financial harm as a result.

Many of these claims focus on the question of whether an omission of facts was material. Typically, an omission of fact is material when it is likely, under the circumstances, to affect the conduct of a reasonable person regarding the transaction. For example, if a broker purposefully does not tell a client that an investment is incredibly speculative, and this information would have affected a reasonable investor’s decision regarding the investment, then it would likely be considered a material fact.

According to FINRA, a fact concerning an investment may be material if it involves:

  • The risk of a particular investment or investment strategy;
  • Charges or fees;
  • Financial information about the company making a securities offering; and/or,
  • Technical or analytical information (e.g., bond ratings).

Importantly, a defendant may not be able to use ignorance as a defense in a fraud by omission case. Stockbrokers and financial advisors have certain disclosure duties under state and federal law. If they fail to comply with those duties, it may lead to a claim for fraud by omission.

Negligent Omission

There are situations where a stockbroker or financial advisor omitted facts in a way that doesn’t quite rise to the level of fraud – but still caused financial harm. In a fraud by omission case, the investor must prove that the financial advisor or broker purposely or recklessly refused to share key information. By contrast, an investor arguing a negligent omission claim must simply prove that the advisor was careless in failing to reveal a material fact they should have disclosed.  

Omission cases often arise when a stockbroker or financial advisor failed to disclose material information because they failed to conduct due diligence.  Due diligence is the process by which a financial advisor or their firm investigate an investment opportunity to ensure they understand it well (and have found any red flags) before recommending it to their clients.  The failure to conduct the appropriate due diligence often leads to a situation in which the advisor doesn’t properly understand the product they’re recommending, and therefore fails to ensure the proper disclosures are made.  

Generally, a negligent omission claim requires an investor to prove the following:

  1. The defendant broker or advisor made a false statement or omitted a material fact;
  2. The defendant did not have a reasonable basis to believe that their statement was accurate;
  3. The defendant made the false statement or omission to induce action (investment);
  4. The investor relied on the defendant’s representations and took action as a result of it; and,
  5. The investor suffered financial harm as a result.

As with fraud by omission cases, the specific standard for a negligent omission case may vary slightly by each jurisdiction’s courts.

Negligent omission cases are actionable because financial advisors and brokers owe their clients a high duty of care. They may also have a fiduciary responsibility to their clients. Even if their omission was not intentional, you may still be able to pursue legal action against your broker or advisor if you suffer financial losses as a result of their advice.

Signs your Broker Misrepresented or Omitted Relevant Facts

People sometimes question if they were defrauded by their stockbroker, or if they themselves were careless in making the losing investment. Here are some clues to look for:

  • You told your broker you did not want a high-risk investment and thought your investment was safe. Instead, you have suffered extreme and unexpected losses.
  • You do your own research and find there are risks and fees to your investment that you were never told about.
  • You receive the paperwork about your investment and discover it does not match what you were told by your broker.
  • You hear in the media news about fraud surrounding your investment.
  • Your broker won’t return your phone calls.
  • You do not recognize some of the transactions on your account statement.

One of the most common signs that your broker or financial advisor misrepresented the investment is when you suffered losses that are far higher than anticipated. While there is an element of risk in any investment, if your losses are much bigger than you thought possible based on what your broker told you, it may indicate that you were steered to an unsuitable investment. If your broker did not disclose key facts about the risks of an investment, then you may be able to pursue a legal claim against them.

If you are an investor who believes your loss was due to misrepresentations or omissions by your stockbroker or investment advisor, contact us. Our securities fraud attorneys are committed to focusing on investment abuse. We will review your case to determine if your broker or advisor misrepresented the investment to you or failed to reveal to you the facts necessary for you to make an informed decision. If so, we may pursue your claim for misrepresentation or omission of facts.

It can be difficult for an investor to know if or how he or she was misled. But our securities attorneys focus exclusively on investment abuse. We can tell you whether your advisor made inadequate disclosures or gave you false information.

I Lost a Lot of Money on an Investment. Can I File a Claim Against My Broker for Financial Misrepresentation?

It depends. Omission of facts cases can be tricky to prove and require evidence that the broker not only omitted a material fact regarding the investment, but that you relied on their representation and suffered financial harm. If you made the investment in reliance on your broker’s misrepresentations, then you may be able to pursue a securities arbitration claim for damages.

The best way to determine whether you have a potential claim is to consult with a seasoned securities fraud lawyer. Your attorney will listen to your story, review the relevant paperwork, and advise you of your rights. Contact McCarthy, Lebit, Crystal & Liffman to schedule a consultation with a member of our Stock Market Loss team.

My Advisor Gave Me a Prospectus for an Investment that I Believe Is Misleading. Can I File a Claim Against Them for My Losses?

Yes. While a misrepresentation or omission of facts is often verbal, written omissions are also actionable. If your advisor gave you a prospectus or other marketing material that is misleading, and you relied on it while making an investment decision, you could file an arbitration claim against them for damages.

If you believe that your financial advisor misled you and you suffered investment losses as a result, reach out to a securities fraud lawyer to learn about your options for pursuing a case. At McCarthy, Lebit, Crystal & Liffman, we aggressively advocate for clients throughout the country who have been harmed by investment professionals. Call our law firm to schedule a consultation with an experienced securities attorney.

I Want to Report My Broker to FINRA for Omission of Facts. Will I Still Need to File a Claim Against Them?

If your broker or financial advisor engaged in financial misrepresentation, then reporting them to the appropriate governmental agencies – such as FINRA and/or the SEC – is an important way to seek justice. While financial restitution may be part of an enforcement action, it is not guaranteed. Investors who have suffered financial losses due to an omission of facts should instead consult with a securities fraud attorney.

A lawyer can pursue a securities arbitration case on your behalf, working to get you compensation for your losses. Contact McCarthy, Lebit, Crystal & Liffman today to schedule a free consultation with an experienced securities attorney.

How Our Law Firm Can Help

When a stockbroker or financial advisor fails to disclose critical facts to a client, they may be liable for any losses suffered by the investor. Omission of facts is often actionable, whether the omission was intentional or negligent. A seasoned securities attorney can help you enforce your rights as an investor.

At McCarthy, Lebit, Crystal & Liffman, our Stock Market Loss team is dedicated to protecting investors from unscrupulous stockbrokers, investment advisors, insurance agents, and other investment professionals. 

With more than 20 years of experience handling securities fraud matters, we have the skill and the knowledge to fight for our client’s rights. To schedule a consultation with an experienced securities fraud lawyer, call our office at 866-932-1295 or fill out our online contact form.