What type of conduct may be actionable?

Recoverable conduct may include the following:

Negligent Misrepresentation and Omissions

Sellers – brokers, dealers and others – sometimes fail to disclose or misstate the risks to buyers, either verbally or in writing.  Failure to adequately disclose these risks may entitle you to recovery.

Learn more about Negligent Misrepresentation and Omissions

Churning

“Churning” means engaging in purchases and sales to generate fees for the benefit of the seller, not the client.  These can cost a client thousands, with little or no gain.

Learn more about Securities Fraud through Churning

Unsuitability – “Know Your Client” Rules

Brokers and advisers have a duty to understand the basic financial needs, goals and lives of their clients in order to recommend appropriate investments.  For instance, normally it would not be financially prudent to sell a risky investment to a retiree.

Untrustworthy brokers sometimes make unwise or risky purchase recommendations in order to generate commissions.  When such conduct occurs, both the broker and their company may be liable.

Learn about Unsuitability – “Know Your Client” Rules

Over-Concentration

A hallmark of prudent investment is diversification, or spreading investments wisely, which is designed to ensure that if one investment fails others will not, and all will not be lost.  When an inadequately diversified portfolio fails, a broker and their company may be liable.

Learn about Over-Concentration and Securities Liability

Breach of Fiduciary Duty

Brokers and securities firms have a duty to place the interests of their clients above their own.  When they fail to do so, such as by executing trades at a higher than necesary price – they and their company may be liable.

Learn more about Breach of Fiduciary Duty

Investment Fraud

Securities laws are commonly called “Blue Skies Laws” because they protect investors from being sold nothing but “blue sky.”  The failure to adequately disclose risks covers a wide range of conduct for which a broker and his company may be responsible.

Failure to Supervise

A securities company that fails to adequately supervise a broker, where the oversight or lack of oversight leads to unnecessary or undisclosed losses.  In such cases both the company and the broker may be held liable.

Junk Bonds / Variable Annuities

“Junk bonds” and some annuities are complex, poorly understood investments.  Even though they are labeled “bonds” or “annuities,” terms usually signaling safety, these products may involve risks or high costs that are not fully disclosed to investors, for which brokers and their companies may be held liable.

Federal and State Securities Laws May Apply

These laws govern the offer, sale, delivery, and trading of securities and also regulate the activities of stockbrokers, investment advisers, and other professionals. They also regulate the forms of offerings, the types of investors to whom sales can be made, and the kinds information that must be disclosed.

Disclosure

Disclosure is the byword of the securities laws.  The proper — and improper — disclosure of information related to securities, financial and otherwise, is thus also heavily regulated. This includes not only prospectuses, formal offering memoranda, proxy statements, financial statements, and other formal paper, but all other information that may be communicated during a sales pitch, whether over the phone or in person, via email or twitter or however.

Securities

Almost any investment is included in the definition of a “security,” such as stocks, bonds, notes, investment contracts, or other agreements where someone looks to the efforts of a common enterprise (e.g., Apple, Inc.) for profits.

This also includes other less obvious investments, such as an interest in a future oil well sold over the telephone, an oil and gas lease, various types of interest in liens, mortgages, properties, equipment, fleets of vehicles or services to be provided.  There is no limit to what may be securitized and sold to investors.  If the activities that might generate a profit are outside the direct control of the investor, the investment is probably a security.

Sales of Securities

Securities are sold in as many ways as there are to sell just about anything – verbally, over the phone, by mail, by prospectus, or by a broker or brokerage house.  What they’re named is irrelevant.

Risks

Most of the problems arise when the risks to the purchase of a security are not fully disclosed. This can be the result of a verbal assurance as well as a false statement on paper.

The Seller’s Commissions

The amount of commission to be earned by the seller should be fully disclosed.  The description should be fully accurate.