CAN A BROKERAGE LIQUIDATE AN ACCOUNT WITHOUT NOTICE?
The market volatility created by COVID-19 fears has been a disaster for novice investors with securities-backed lines of credit (“SBL”) and traditional margin accounts. Many investors learned for the first time the perils of leverage and how quickly seemingly profitable accounts could go south and be forcibly liquidated by broker-dealers without notice (a “Blow-Out”), with the investor suffering substantial losses. Those equity investors, especially those with a few securities concentrated in the oil and gas, hospitality, gaming, air travel, and/or cruise industry sectors, probably suffered the most margin calls and forced liquidations in their SBL and/or margin accounts.
We have heard from many investors that when they complained to their respective brokerage firms, they were told that they signed contracts that allowed the broker-dealers to do exactly what they did to them and that they had no recourse. We have no doubt that contracts were signed with those onerous contract provisions but would question whether you have no recourse against the brokerage firm and your financial advisor. You may not have recourse for the issuance of margin calls and/or forced liquidations of all or some of your securities on short notice or no notice at all, but that is not the end of the inquiry.
The most important inquiry is what happened when the securities-backed line of credit and/or margin accounts were recommended to be opened in the first place. Should either of those leveraged accounts have been recommended at all by a financial advisor? Should the broker-dealer have even allowed you to open one of those types of accounts based upon your investment profile and financial condition? Did the financial advisor misrepresent the nature, mechanics, and/or risks of the securities backed by a line of credit and/or in a margin account? Once the accounts were opened, did the financial advisor make unsuitable securities recommendations to purchase especially volatile securities in that account? Did the financial advisor recommend that you over concentrate your portfolio in stocks in any particular sector in the leveraged account? These are all questions you should be asking yourself and an experienced securities arbitration attorney before you accept the brokerage firm’s denial of any liability for the losses you suffered.
There were many incentives from management to get their financial advisors to drive investors into securities-backed lines of credit and margin accounts. After all, the revenue derived from these interest bearing accounts has become the largest profit center for many brokerage firms. Financial advisors were encouraged to recommend credit-lines to buy houses, boats, and pay taxes when investors wanted to sell securities for those purposes. The sales pitches we heard about repeatedly followed: Why would you want to ruin your portfolio when it’s doing so well? Why sell when you can borrow from the firm, keep your stocks and bonds, and use the profits or interest earned to pay off the loans? These accounts involve leverage, and the use of any leverage in making any investment is a “speculative” investment strategy. Rarely, has any investor told us he/she heard anything from their financial adviser about risk or margin calls before they borrowed any money.
We have represented many investors who have suffered from this kind of abuse. If you are interested in learning more about these type of cases, you may want to read the following articles:
- Investors With “Blown-Out” Securities-Backed Credit Line and Margin Accounts: How Do You Recover Your Investment Losses?
- Securities-Backed Lines of Credit Can Be More Dangerous Than Margin Accounts!
- UBS Financial Services, Inc. Sued For Florida and Ohio Financial Advisor’s Alleged Misconduct Involving a Credit-Line Investment Strategy
- J.P. Morgan Sued for Edward Turley and Steven Foote’s Alleged Margin Account Misconduct
We would be glad to discuss these cases and more importantly, your case during a telephone call or meeting at our office.
LOOKING TO LEARN MORE: Click here for related articles about Margin Call Liquidations.
Hear From Our Clients
At The Law Offices of Robert Wayne Pearce, P.A., we believe the ultimate barometer of our success is surpassing the expectation of our clients.
The following clients have direct knowledge of our firm's processes from the inside and experienced our fierce advocacy.
Hear From Our Clients
"Bob Pearce is the real-life Marvel Hero who fights for small investors against brokerage institutions who manage investors’ hard-earned money carelessly, and even worse, conduct fraud outright."
Bob Pearce is the real-life Marvel Hero who fights for small investors against brokerage institutions who manage investors’ hard-earned money carelessly, and even worse, conduct fraud outright. For years, we were misled by a brokerage firm who told us they would correct the wrong or compensate us for their mistakes. Only after we started working with Bob, we realized how powerful and wonderful it is to have a top legal expert by your side. Bob is immensely detail oriented, knowledgeable, professional, and confident. We are more than happy with the outcome Bob achieved for us within just a few months. Thank you, Bob!- Q Wang -
“Robert Pearce is part of that unusual breed of lawyers that are able to create empathy with clients and thoroughly adopt their cause”
No half efforts here. He and his group of professionals are outstanding strategists that can execute with precise fervor and unyielding determination. Theirs is a huge wave of facts, research, precedents and preparation, that has impressed me in its thoroughness and creativity, and most importantly with the results. No stone goes unturned and no effort is ever spared. In my book, he and they are those of a very rare kind that one wants to keep for a very long time.- Ramon Flores-Esteves -
“Just like the song from HAMILTON, it's so nice to have Bob Pearce on your side.”
Just like the song from HAMILTON, it's so nice to have Bob Pearce on your side. He is the consumate plaintiff's lawyer: smart. dedicated, fully able to try a case but a great negotiator in a mediation. He did a wonderful job for us, fully supporting us through the process and more than holding his own against a large national law firm.- Maurice Z. -
"Mr. Pearce and his staff exceeded all of our expectations."
Mr. Pearce and his staff exceeded all of our expectations. We were able to reach a settlement that was of our complete satisfaction, all within a very smooth, professional and efficient process. Mr. Pearce is now not only our lawyer but our family friend. We highly recommend him and his team!- Severiano L. -
"For the best fighting chance, Robert Pearce is the lawyer you want in your corner."
This law firm is the real deal. We were so lucky that they took our case as they have so much experience in securities and all the wrongdoing that happens in these investment companies where they mislead you and your money (as in our case) into schemes that are not what you think they are. Mr. Robert Pearce is one of the best lawyers around, a truly professional who will fight for you and will tell you as it is all the time. We could not have gone thru this experience if it was not for all the advice, guidance and support he and all of his staff and associates brought to the game. For the best fighting chance, Robert Pearce is the lawyer you want in your corner.- Astrid M. -
"He never felt intimidated and his study of the case and perseverance prevailed at all times."
Attorney Robert Pearce was our lawyer in a case against a Brokerage Firm and I'm witness to his ability and intelligence to deal with lawyers from the most prominent law firm in New York which was the key to recovering much of our losses cheered by their negligence. He never felt intimidated and his study of the case and perseverance prevailed at all times.- Jose A. C. -
"In the end, Bob and I had the last laugh when the arbitrators awarded me almost 6 million dollars."
No lawyer except Bob said I had a chance of winning. When UBS Lawyers laughingly offered me zero to settle the dispute, Bob became even more determined to prove everybody wrong. Bob was extremely prepared, and always a step ahead of the opposing attorneys throughout the arbitration. In the end, Bob and I had the last laugh when the arbitrators awarded me almost 6 million dollars.- J. Blanco -
"Every meeting and phone call was made with dedication and desire to help our family every step of the way."
Robert's team is excellent. They are very competitive in what they do and they are very responsible. Every meeting and phone call was made with dedication and desire to help our family every step of the way. Their professionalism, responsibility and empathy assured us that we were in good hands. Recommend to everyone.- Mayra A. -