Securities Fraud: What You Should Know as an Investor

Investors trust their financial advisors to make important and wise decisions regarding the management of their investment portfolio. Financial advisors hold a position of trust with their clients, and clients expect their advisor to act with the client’s goals in mind. Unfortunately, advisors frequently violate the trust of their clients by committing various forms of securities fraud. It is important to note that suffering losses on your investments, by itself, is not a form of securities fraud. Securities fraud involves the deception of investors or the manipulation of financial markets through illegal methods. If you suffered investment losses but don’t know if you have a claim for securities fraud, our securities fraud lawyers at The Law Offices of Robert Wayne Pearce, P.A., are ready to help. Contact us today to get started on your case. What Is Securities Fraud? Securities fraud, also known as investment fraud and stock fraud, is the deception of investors or the manipulation of financial markets through illegal methods. Investors who suffer losses as a result of securities fraud can seek to recover their losses. Investment Losses? Let’s talk. or, give us a ring at 561-338-0037. Common Forms of Securities Fraud Securities fraud occurs in multiple different ways, making it even more difficult to recognize. Victims of securities fraud often suffer steep losses as a result of the fraud. Fortunately, victims of securities fraud can seek to recover their losses. So, what is securities fraud? Below are some of the most common forms of securities fraud.  Misrepresentations and Misleading Statements Misrepresentation is the most common type of securities fraud. It involves a false statement about an investment in a company; for example, a company that supposedly has earnings, a revolutionary product, or multi-million dollar contract when it has none of those assets. Misleading statements arise by omission; such as, using the same examples, when the financial advisor fails to tell you the earnings surprise was a one time past event, the revolutionary product can’t be patented, or the multi-million dollar contract is with another company about to file bankruptcy. Undoubtedly, those missing facts would have made all the difference to you in making your investment decision. The fraudster doesn’t care, he/she lies or misleads you to just get you to part with your money so he/she makes a commission. If you relied upon that intentionally false statement or misleading statement and made that investment, you have the right to claim securities fraud under federal and state statutes as well as ordinary common law fraud. But the securities fraud statutes usually have statutory remedies, including, prejudgment interest on the full purchase price from the date of purchase and attorney fees, to fully compensate you for your loss. The only problem with securities fraud statutes is they generally come with short statutes of limitation and so, you need to act fast and file suit quickly to take advantage of them. Ponzi-Like Schemes Ponzi schemes involve promises of high returns with little risk for investors, a staple of many forms of securities fraud. However, instead of issuing returns to investors out of profits, the funds of new investors are paid to early investors. Thus, Ponzi scheme victims receive guarantees of returns regardless of market conditions.  Ponzi schemes fall apart once there are no new investors providing funds. Companies operating Ponzi schemes focus the majority of their efforts into advertising to new investors to keep the scheme afloat.  Well-known financier Bernie Madoff was convicted of running the largest Ponzi scheme in history after evidence showed that Madoff falsified trading reports to indicate clients were earning profits on investments that did not exist. Madoff received a 150-year sentence in federal prison after pleading guilty. Embezzlement Embezzlement refers to the misappropriation of assets by a person entrusted with those assets. An embezzler possesses the assets lawfully at the outset, but once the assets are used for unintended purposes, embezzlement has occurred.  For example, financial advisors placed in charge of clients’ accounts possess authority to conduct transactions in the accounts, subject to some limitations. A financial advisor who steals assets entrusted to him or her by a client commits embezzlement.  Advance Fee Schemes Advance fee schemes target all kinds of victims and are becoming more prevalent with the rise of internet scams. Con artists operating advance fee schemes require the victim to pay an “advance fee” in anticipation of receiving something—such as a service, a product, or an investment opportunity—of greater value in return. The scheme operator convinces the victim to provide the fee, then subsequently informs the victim that he or she is ineligible for whatever was offered after the fee is paid. The victim is unable to recover the fee that was paid. To avoid suffering losses due to an advance fee scheme, take precautions before conducting business with a company you have never heard of. Providing any payment amount to a person or company you are unfamiliar with is a risky practice. When in doubt, speak to an experienced securities fraud attorney to determine whether the investment opportunity is fraudulent.  Pump and Dump Fraud A pump and dump scheme, also referred to as market manipulation, occurs when a group of fraudsters post content on the internet enticing investors to purchase a stock as soon as possible.  The fraudsters claim to have insider information regarding the product that will result in a jump in the share price of the stock. The fraudsters post content in multiple forums in an attempt to entice as many new investors as possible. Once investors purchase shares of the stock, the fraudsters sell their shares, resulting in a dramatic dip in the share price. New investors, lacking awareness of any fraudulent conduct, suffer the losses.  Pump and dump schemes began primarily through cold calling. However, the internet and social media provide fraudsters a more efficient way to attempt the scheme. Insider Trading Insider trading involves the use of “non-public, material information” to buy or sell stocks. Non-public material information includes any information that could substantially impact an investor’s decision...

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The Most Common Forms of Breach of Fiduciary Duty (And What to Do)

Breaches of fiduciary duty are unfortunately common. Since the fiduciary duty is the highest legal standard of care, however, there are severe consequences for a breach of fiduciary duty. With the help of an investment loss recovery attorney, you can hold the fiduciary accountable for his or her misconduct. What Is a Fiduciary Duty? A fiduciary is a person entrusted to act in the best interests of another (i.e. the principal). Once the fiduciary agrees to the relationship, the fiduciary is bound by a set of legal and ethical obligations, known as fiduciary duties.  In general, all fiduciaries owe a duty of loyalty and a duty of care. Some fiduciaries will owe additional duties based on the relationship and the industry in which they are in.  The duty of loyalty requires fiduciaries to act in the best interest of the principa, avoid any conflicts of interest, and refrain from self-dealing. The duty of care means the fiduciary must make informed decisions based on all information available.  Fiduciary Duties of Financial Advisors  While all financial advisors have a duty of care to their clients, only registered advisors have a fiduciary duty. It is important to know whether your financial advisor is registered with the U.S. Securities and Exchange Commission (SEC) or a state securities regulating agency. Financial advisors who are not registered can make investments that benefit them, as long as the investment is within your stated objectives. A registered financial advisor, on the other hand, can invest only if it is in your best interest. For registered financial advisors, the fiduciary duties owed vary by state. However, the following fiduciary duties apply to all registered financial advisors in all states Duty to Recommend Suitable Investments Prior to recommending an investment, the financial advisor must study and understand the investor’s objectives, tax status, and financial situation, among other things. Any investments that the financial advisor recommends must be suitable to the investor’s needs.  Duty to Inform Investor A financial advisor must fully inform the investor of the risks associated with the purchase or sale of a security. The advisor cannot misrepresent any material facts regarding the transaction. Duty to Act Promptly and with Authorization  All client orders must be performed promptly and with investor’s express consent. The advisor must obtain separate authorization for each investment unless the investor has a discretionary account.  Duty to Refrain from Self-Dealing  A financial advisor cannot initiate a transaction where he or she personally benefits. Duty to Avoid Conflicts of Interest For any recommendations made after June 30, 2020, financial advisors have a fiduciary duty to avoid any conflicts of interest. If unavoidable, the advisor must disclose the conflict to the investor.  What Constitutes a Breach of Fiduciary Duty? A breach of fiduciary duty occurs when the fiduciary fails to act in the best interest of the principal. This can happen through an intentional act or failure to act.  There are four elements to a valid breach of fiduciary duty claim. Duty A fiduciary relationship must exist for the fiduciary to owe a duty. You must show that the fiduciary knowingly accepted that role to hold them to the fiduciary standard of care. This is typically shown through a written agreement between the parties, such as a customer agreement. Breach The fiduciary must act contrary to your best interests. A breach of fiduciary duty can be shown through deliberate acts, such as making decisions on your behalf without consent. You can also prove a breach through the fiduciary’s failure to act—for example, not disclosing a conflict of interest.  Damages You must suffer actual harm or damages from the fiduciary’s breach. Proving there was a breach is not enough for a valid claim of breach of fiduciary duty. Damages can be either economic or non-economic, such as mental anguish.  Causation There must be a direct causal link between the fiduciary’s breach and harm to you. Despite your damages, if they are unrelated to the fiduciary’s misconduct or an unforeseeable result of the breach, you cannot recover your losses.  What Are Common Forms of Breach of Fiduciary Duty? Below are just a few examples of how a financial advisor can breach his or her fiduciary duty. In each instance, the fiduciary fails to act in the best interest of the investor. Misrepresentation or Failure to Disclose Information If a financial advisor does not present a client with all material information about an investment, this is a breach of fiduciary duty. Material information is what a reasonable investor would consider important when deciding whether to invest.  Sometimes financial advisors will mislead investors by omitting information, such as risk factors or any negative information about a stock.  Excessive Trading Excessive trading, also known as churning, in your account is a breach of fiduciary duty. Financial advisors will make large numbers of trades solely to generate more commissions for themselves.  Unsuitable Investments Financial advisors must “know their customer” before making investment recommendations. This includes understanding the client’s investment objectives, risk tolerance, time horizon, financial standing, and tax status. The advisor breaches their fiduciary duty if they make an unsuitable investment, even with the best intentions.  Failure to Diversify Your financial advisor must recommend a mix of investments so that your assets are properly allocated among various asset classes and industries. Failing to diversify your portfolio puts you in a position of great risk and is a breach of fiduciary duty. If your assets are over-concentrated in a particular stock or sector, you may experience significant losses if the company or industry does not perform well.  Failure to Follow Instructions When you give instructions to your financial advisor, they have the fiduciary duty to promptly perform your orders. If your advisor fails to follow your instructions in a timely manner and you suffer financial losses, you can recover.  What To Do If Your Financial Advisor Breached a Fiduciary Duty If you lost money at the hands of your financial advisor, there are several potential courses of action. An experienced investor loss recovery attorney can walk you through the different options and...

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What Is Financial Advisor Malpractice?

As an investor, you expect your financial advisor to properly manage your investment portfolio. Unfortunately, this is not always what happens. Financial advisors owe their clients certain obligations with respect to their investment accounts. Failure to adhere to these obligations can result in a claim for financial advisor malpractice. In certain circumstances, the financial fraud committed by your financial advisor will be obvious. For example, if your financial advisor forged your signature on a document, he or she clearly committed misconduct. However, most financial malpractice claims are not this straightforward.  The investment loss recovery attorneys at The Law Offices of Robert Wayne Pearce, P.A., have helped hundreds of investors recover losses caused by financial advisor malpractice. Contact us today for a free consultation. What Are My Financial Advisor’s Obligations and Duties to Me?  Registered financial advisors must adhere to certain fiduciary duties, or obligations, with respect to their clients. Financial advisors who are not registered and are not making securities recommendations to retail customers still owe their clients certain obligations, but they are not as stringent as fiduciary duties. Fiduciary Duties Registered investment advisors are bound by fiduciary duties to their clients. The Investment Advisers Act of 1940 defines the role and responsibilities of investment advisors. At its core, the purpose of this act was to protect investors.  A financial advisor owes their client a duty of care and a duty of loyalty. The Securities and Exchange Commission (SEC) interprets these fiduciary duties to require a financial advisor to act in the best interest of their client at all times. The SEC provides additional guidance for each fiduciary duty specifically. The duty of care requires that an investment advisor provide investment advice in the client’s best interest, in consideration of the client’s financial goals. It also requires that a financial advisor provide advice and oversight to the client over the course of the relationship. The duty of loyalty requires an investment advisor to disclose any conflicts of interest that might affect his or her impartiality. It also means that the financial advisor is prohibited from subordinating his or her client’s interests to their own. The Suitability Rule Broker-dealers in the past were subject to less demanding obligations.  The Financial Industry Regulatory Authority (FINRA) regulates broker-dealers in the United States. FINRA previously imposed a suitability obligation on broker-dealers that only required them to make recommendations that were “suitable” for their clients.  Under the suitability rule, a broker-dealer could recommend an investment only if it was suitable for the client in terms of the client’s financial objectives, needs, and risk profile. Broker-dealers did not owe a duty of loyalty to their clients and did not have to disclose conflicts of interest.  Recently, however, FINRA amended its suitability rule. Regulation Best Interest FINRA recently amended its suitability rule to conform with SEC Regulation Best Interest (Reg. BI), making it clear that stockbrokers now uniformly owe certain heightened duties when making recommendations to retail customers.  As with fiduciary duties, under Reg. BI, all broker-dealers and their stockbrokers now owe the following duties:  Disclosure,  Care,  Conflicts, and  Compliance.  However, it’s important to remember that they owe these duties only when they make recommendations regarding a securities transaction or investment strategy involving securities to a retail customer.  While these changes are still new, one thing is certain—the Reg. BI standard is definitely a heightened standard compared with the previous suitability standard.  Forms of Financial Advisor Malpractice Investors usually hire financial advisors because they do not have experience in investing. With this lack of experience, how can an investor know when a financial advisor is committing malpractice? There are several ways financial advisors can commit financial malpractice. Lack of Diversity Financial advisors have a duty to ensure your investment portfolio is properly diversified to include a variety of investment assets. That may include a mixture of stocks, bonds, or mutual funds in multiple different sectors.  A portfolio that lacks diversification is likely to result in significant losses to the client in the event of a market downturn in a specific sector. If you believe your financial advisor failed to properly diversify your portfolio, contact an investment loss recovery attorney today. The attorneys at The Law Offices of Robert Wayne Pearce, P.A., have significant experience handling these types of cases and will ensure the financial advisor responsible for your losses is held accountable.  Your Investments Are Unsuitable Every investor is unique. That means financial advisors must consider the specific goals and needs of each individual client before recommending investments. A financial advisor must consider a client’s risk tolerance when recommending investments. Risk tolerance refers to an investor’s willingness to endure losses in the financial market. For an aggressive investor, a financial advisor might recommend a risky investment that has a better possibility of high returns. The same recommendation would be unsuitable for an investor with a low risk tolerance. If your financial advisor recommended investments that you believe are unsuitable, contact the Law Offices of Robert Wayne Pearce to have your case reviewed by an experienced investment losses attorney. Your Investment Advisor Is Excessively Trading Excessive trading, sometimes called churning, occurs when a financial advisor buys and sells stocks excessively with the goal of generating commission fees. Churning is prohibited by the SEC. Investors should frequently review their account statements to ensure that the number of trades in their account does not increase drastically. If your financial advisor has been excessively trading in your investment account, reach out to an attorney as soon as possible to prevent further losses.  Financial Advisor Negligence In some cases, your financial advisor may seem like he or she is doing nothing at all. The financial advisor could be focused on other clients or on personal matters. Regardless of the reason, this behavior is not appropriate. A financial advisor may be guilty of malpractice for failing to give the appropriate amount of attention to a client.  Client Testimonials The Law Offices of Robert Wayne Pearce, P.A., has been representing investors in disputes against...

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What To Do if You Believe Your Financial Advisor is Stealing Your Money (Step by Step)

Financial advisors are highly trusted professionals who help make decisions that impact your economic future. When that trust is broken through a bad or negligent act, the investor suffers and the financial advisor must be held accountable. If you believe your financial advisor stole your money, there are several options for you to recover. For assistance, contact the Law Offices of Robert Wayne Pearce, P.A. to learn how we can help you today. The Fiduciary Duty All financial advisors are held to a standard of care when dealing with investors. Registered financial advisors have a higher fiduciary duty to their clients under the Investment Advisers Act of 1940. This is the highest legal standard of care and requires financial advisors to act in the best interest of their clients, make suitable investments, and disclose relevant information to you.  Knowing whether your financial advisor is registered with the U.S. Securities and Exchange Commission (SEC) or a state securities regulator is important because if the advisor breaches the fiduciary duty, you can bring a claim against the financial advisor through the Financial Industry Regulatory Authority (FINRA). FINRA is the governing organization that creates and enforces rules for advisors and their firms and assists in resolving disputes between advisors and investors.  Do You Have a Claim? If your financial advisor outright stole money from your account, this is theft. These cases involve an intentional act by your financial advisor, such as transferring money out of your account. However, your financial advisor could also be stealing from you if their actions or failure to act causes you financial loss.   Losing money through investment is not enough to bring a claim against your financial advisor. Remember, there is no guarantee of return when investing. Even if your financial advisor made the recommendation, under federal securities law and FINRA regulations, you cannot hold your advisor liable simply because they lost you money. You need a viable cause of action, such as a breach of fiduciary duty, negligence, or malpractice. Types of Claims Against Your Financial Advisor  Understanding securities law and FINRA regulations are crucial to know whether you have a valid claim against your financial advisor. The investment loss recovery attorneys at The Law Offices of Robert Wayne Pearce P.A. have over 40 years of experience in securities and investment law. They have helped countless investors recover their financial losses caused by bad or negligent acts by their financial advisors. The Law Offices of Robert Wayne Pearce P.A. have handled hundreds of cases involving many types of misconduct by financial advisors. Negligence In a negligence claim, you do not need to show that the financial advisor intentionally acted in a harmful way, but rather that the advisor failed to do something they had an obligation to do and caused the economic loss. For example, your advisor may have made an unsuitable investment by failing to take into consideration your risk tolerance. If you lost money based on the recommended investment, it may be appropriate to file a claim for negligence against your financial advisor.  Breach of Fiduciary Duty A financial advisor who breaches his fiduciary duty has failed to meet the required standard of care. You may have a valid claim for breach of fiduciary duty if your advisor failed to execute your stated objectives or did not disclose information about a product. Other examples of breaching the fiduciary duty include: Unauthorized trading, Unsuitable investments,  Undiversified portfolio, and  Account churning.  In each of these instances, the financial advisor did not act in your best interest.  Failure to Supervise A brokerage firm is responsible for supervising the actions of its financial advisors and any other employees. If the firm fails to do this, it can be held liable for your financial losses.  What You Can Do There are several stages of resolution to recover your financial losses. Depending on the facts of your case, you may be able to resolve it and recover without any formal proceedings, or you may have to litigate. The attorneys at The Law Offices of Robert Wayne Pearce P.A. have helped investors in all stages and have successfully recovered over $140 million in losses for our clients.  Review Customer Agreement If you believe your financial advisor stole money from you, either directly or indirectly through losses in your account, you should first review your customer agreement. Understand what sort of authority you gave your financial advisor and if there is a mandatory arbitration clause. This clause is common in most customer agreements with brokerage firms. These clauses often state that you waive your right to file a lawsuit against your advisor and agree to engage in a FINRA arbitration proceeding instead.  Informal Dispute Resolution Claims against financial advisors are incredibly complex legal matters. There are informal options available, however. Even at this stage, you should contact an investor loss recovery attorney for assistance. FINRA, which regulates the investment industry, instructs investors to first pursue informal dispute resolutions before filing a claim against their financial advisor.  Depending on the severity of the financial advisor’s misconduct, you may be able to resolve the matter directly with your advisor or the firm’s compliance department. If this is not suitable or you fail to come to a resolution, the next stage is participating in voluntary, non-binding mediation.  FINRA Mediation Mediation is a voluntary process that involves a neutral third party who assists in reaching a mutually agreeable solution. FINRA offers a forum for advisors and investors to mediate. This option is faster and less expensive than arbitration and litigation. Four out of five cases mediated by FINRA are resolved. If you fail to reach a satisfactory solution through mediation, you still have the right to arbitrate or litigate.   FINRA Arbitration Arbitration is more like a traditional legal proceeding in that an impartial party or panel hears arguments from both sides, analyzes the facts and evidence, and makes a final, binding decision. If you choose arbitration or are required to arbitrate under your customer agreement, you forfeit your...

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Securities & Exchange Commission Complaint: How to Report Your Broker Anonymously

Your investments are important—that’s why so many individuals hire investment brokers and financial advisors to manage their investment accounts.  Having a qualified broker can be a great advantage to the growth of your investments. Unfortunately, however, investment and securities fraud remains a common and serious issue in the United States each year. So what do you do if you are a victim of investment fraud at the hands of your broker?  The U.S. Securities and Exchange Commission (SEC) has a mission of protecting investors; maintaining fair, orderly, and efficient markets; and facilitating capital formation. In furtherance of this goal, the SEC allows individual investors to file complaints against their broker or their broker’s firm. If your broker committed negligence or broker fraud, you may be entitled to file a complaint and recover your losses. Violations of securities law can be reported to the SEC, which will conduct a comprehensive investigation.  Looking for information on how to file an SEC complaint against a broker? Look no further than the Law Offices of Robert Wayne Pearce, P.A. Not only can our attorneys help you report your broker, but we can also help you recover your investment losses.  Filing a complaint against your broker with the SEC can be a great way to hold them accountable and put future investors on notice of their wrongdoing. However, doing so doesn’t necessarily help you get your money back. Contacting an attorney, however, can be the first step toward actually recovering your personal investment losses that you suffered at the hands of your broker.  Stockbroker fraud attorney Robert Wayne Pearce has over 40 years of experience handling complex securities, commodities, and investment arbitration and litigation cases. He has helped countless clients through their investment-related disputes, and he will fight to do the same for you. Please don’t hesitate to send us an online message or call (800) 732-2889 today for assistance. Why Would I File a Complaint? There are numerous reasons you may need to file a complaint with the SEC against your broker. Common examples of wrongful actions by a broker or brokerage firm include: Offering fraudulent or unregistered securities;  Misappropriating client funds; Insider trading; Making false or misleading statements; and Failing to file required reports with the SEC. Of course, not all actions by a broker constitute fraud for which you can file a complaint with the SEC. Remember, the stock market is inherently volatile, so the fact that you lost money does not necessarily mean your broker took any wrongful actions.  An experienced investment fraud attorney can help you determine whether filing a complaint with the SEC against a broker might be warranted. Filing a Complaint with the SEC Against a Broker: What You Need to Know If you suffer financial losses due to the negligence or misconduct of a broker or brokerage firm, filing a complaint with the SEC against the broker can be an important step to take.  Not only can this help prevent future investors from being subject to the same fraudulent and predatory actions, but it may also provide you with an avenue to recover your losses. How to File a Complaint Against a Broker The first step in reporting your broker for fraud or misconduct is to file your formal complaint with the SEC.  The SEC provides an opportunity for members of the public at large to submit broker complaints electronically using the SEC’s Investor Complaint Form.  What to Include in Your Complaint The Investor Complaint Form may appear simple to complete. However, there is more to it than you might think.  The form requires basic information such as: Your name and address; Basic information about your broker; The type of investment involved; A brief description of the events giving rise to your complaint; and Any actions you may have already to resolve your complaint against your broker, such as mediation, arbitration, or court action. The complaint form can play a vital role in whether the SEC allows your case to move forward. Thus, the more information you are able to provide, the better equipped the SEC will be to investigate your complaint. An experienced investment fraud attorney can be a great benefit to you as you complete your Investor Complaint Form and move forward in the process.  What Happens After Submitting My Complaint After the SEC receives your complaint, they will thoroughly investigate your claim and all relevant evidence.  Central to the process is confidentiality. The SEC conducts its investigations in a manner that will protect the parties and preserve the integrity of the complaint process.  Then, depending on the allegations asserted in your form, the complaint will be referred to the appropriate SEC office. The Office of Investor Education and Advocacy The Office of Investor Education and Advocacy handles basic investor questions regarding securities law and complaints related to financial professionals. These SEC officers will also advise complainants of possible remedies and, in some cases, will intervene on your behalf and reach out to brokers or other financial advisors concerning the issues raised in your complaint. This office may also refer your complaint to another division of the SEC for resolution. Enforcement Division The Division of Enforcement, on the other hand, employs attorneys to review information and tips regarding securities law violations.  Officers in this office investigate the claims in their entirety, retrieving whatever evidence may be necessary. Again, it is important to note that the investigations conducted by the SEC are typically confidential unless made a matter of public record.  After completing a thorough investigation, the Enforcement Division may recommend that the SEC bring civil actions in federal court or before an administrative law judge to prosecute securities law violations.  Why Hire an Investment Loss Attorney to Assist with Complaints Against Your Broker? Reporting the fraudulent misconduct of a broker to the SEC is important. However, filing an SEC complaint is not the only way to hold a broker or brokerage firm accountable.  In fact, in some cases, filing an SEC complaint may not be...

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The Most Common Types of Investment Frauds in 2021 [How to Take Action]

Consult a Highly-Experienced and Dedicated Investment Fraud Attorney to Learn How to Protect Your Rights If You Suspect Your Broker or Financial Planner of Fraud Hiring a reputable investment advisor is frequently a wise decision. You did things right by hiring someone you thought you could trust, but you still lost money. Knowing more about types of investment frauds could help you understand what you need to do. A skilled investment loss attorney could investigate your situation and determine if you are the victim of investment fraud.  At the Law Offices of Robert Wayne Peace, P.A., we devote our extensive experience and advanced skill to protecting investors who fell prey to unscrupulous investment professionals. Contact us today to learn more about how we can help hold your financial advisors accountable for fraud or malpractice. Investment Fraud is More Pervasive Than You Think Your story is probably like many others. You have worked hard and saved money to plan for your future. So instead of “playing the market” yourself, you engage a financial advisor to help protect your nest egg.  You probably felt at ease with your decision to hire a financial advisor. Your financial advisor is a fiduciary, and, accordingly, they owe you a duty of care. This is someone you believe you can trust with your savings and rely on to make the right decisions for you and your family. Most financial advisors are honest, hardworking, and caring professionals who try their best for their clients. Notwithstanding their strict ethical rules, some investment advisors cannot resist the temptation of making money the easy way.  If you have lost money due to investment fraud or negligence, we invite you to reach out or call (800) 732-2889. How Do You Know If You’re the Victim of Some Type of Investment Fraud? Everyone knows the old saying that “if it’s too good to be true, it probably is.” This adage still pertains to investment opportunities even today. Many fraudulent schemes perpetrated by dishonest financial advisors lure unsuspecting investors into their trap with some type of “get rich quick” scheme. We will examine five types of investment fraud commonly employed by shady financial advisors. Promissory Note Fraud If you have ever bought a home or a car and financed the transaction, you probably understand the significance of a promissory note. Buying and selling promissory notes is a sophisticated investment strategy. Your advisor must adhere to the strict regulations enforced by the U.S. Securities and Exchange Commission (SEC) when transferring promissory notes. Promissory notes might seem like a worthwhile investment. The deal allows you to hold the note and receive interest payments as well as repayments on the principal. You might have purchased the note for a discount, which increased your potential return. Investing in promissory notes, especially short-term notes, is extremely risky. Short-term notes offer higher than market interest rates and the allure of making a substantial amount of money quickly.  Promissory note scams prove to cost private investors millions of dollars. The seller of the note has no responsibility to register short-term notes with the SEC. Therefore, small investors cannot research the viability of these notes, the historical performance of similar notes, and whether the dealer has a good reputation.  Investors accept some risk. However, investors could get wiped out if they invest in promissory notes without proper guidance from a reputable financial advisor. Small or retail investors may not have any recourse against the party who defaults on a promissory note.  They have other options, however. Private investors like you could file a lawsuit against your financial advisor for fraud if they misrepresented or lied about the investment’s inherent risk, its return, or any other material fact concerning the promissory note. Proving investment fraud is difficult. That is why you need a strong legal advocate for individual investors on your side to pursue a claim on your behalf. Ponzi and Pyramid Schemes Ponzi schemes always fail. Yet, people still use them as a way to make easy money. Ponzi schemes always fail because the person running the scam will always run out of money.  The average investor might not identify a Ponzi scheme if it is well disguised. However, suppose you have given money to someone to invest, and there are no underlying assets in the fund, or you are asked to recruit others to join in the initial investment. In that case, you might be unwittingly involved in a Ponzi scheme.  Pyramid or multi-tiered marketing strategies are a similar investment tactic. Pyramid schemes are not inherently unlawful like Ponzi schemes. Notwithstanding, participants in multi-tiered marketing schemes often get swindled out of their money because they continue to invest, with little or no return, based on a promise that they will reach the top of the pyramid.  Like Ponzi schemes, a fraudulent pyramid scheme offers no legitimate underlying investment. On the other hand, some legitimate multi-tiered marketing programs sell consumer goods or other products.  Pyramid schemes are not investment groups or pooled funds. Pyramid schemes operate on the premise you make money based on the number of participants you recruit.  Suppose you or a loved one believes they have lost money because an investment advisor conned you into thinking that you could earn a good return by investing in a strategy that does not involve assets. In that case, you should talk with an investment attorney right away. Investing in Real Estate In America, we are conditioned to believe that the real estate market always goes up. As a result, real estate investing could be a vital component of a diversified portfolio. However, flipping houses, buying distressed properties, or becoming a landlord is not for everyone. Unprepared people could lose their shirts because of bad real estate investments. They have bad tenants, underestimate the rehab costs of a home, or overestimate their return when trying to sell and lose their investment. Moreover, they might end up in debt after making a bad deal. Buying and flipping houses are not the only...

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Non-Discretionary Accounts vs. Discretionary Accounts

When investors first set up an account with a brokerage firm, that account is designated as either discretionary or non-discretionary. Unfortunately, many investors are simply unaware of the status of their account or what it means. This is usually because investment brokers fail to properly explain each type of account. However, knowing what kind of investment account you have is important. The claims available to a victim of investment fraud or broker misconduct depend on the status of your account.

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J.P. Morgan Sued for Edward Turley and Steven Foote’s Alleged Margin Account Misconduct

J.P. Morgan Securities, LLC (“J.P. Morgan”) employed San Francisco Financial Advisor Edward Turley (“Mr. Turley”) and his former New York City partner, Steven Foote (“Mr. Foote”), and is being sued for their alleged stockbroker fraud and stockbroker misconduct involving a highly speculative trading investment strategy in highly leveraged margin accounts1. We represent a family (the “Claimants”) in the Southwest who built a successful manufacturing business and entrusted their savings to J.P. Morgan and its two financial advisors to manage by investing in “solid companies” and in a “careful” manner. At the outset, it is important for our readers to know that our clients’ allegations have not yet been proven. We are providing information about our clients’ allegations and seeking information from other investors who did business with J.P. Morgan, Mr. Turley, and/or Mr. Foote and had similar investments, a similar investment strategy, and a similar bad experience to help us win our clients’ case.

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Securities-Backed Lines of Credit Can Ce More Dangerous Than Margin Accounts

Many investors have heard of margin accounts and the horror stories of others who invested on margin and suffered substantial losses. But few investors understand that securities-backed lines of credit (SBL) accounts, which have been aggressively promoted by brokerage firms in the last decade, are just as dangerous as margin accounts. This is largely due to the fact that the equity and bond markets have been on an upward trend since 2009 and few investors (unless you are a Puerto Rico investor) have experienced market slides resulting in margin calls due to the insufficient amount of collateral in the SBL accounts. Securities-Backed Lines of Credit Overview It is only over the last several months of market volatility that investors have begun to feel the wrath of margin calls and understand the high risks associated with investing in SBL accounts. For investors considering your stockbroker’s offer of a line of credit (a loan at a variable or fixed rate of interest) to finance a residence, a boat, or to pay taxes or for your child’s college education, you may want to read a little more about the nature, mechanics, and risks of SBL accounts before you sign the collateral account agreement and pledge away your life savings to the brokerage firm in exchange for the same loan you could have obtained from another bank without all the risk associated with SBL accounts. First, it may be helpful to understand just why SBL accounts have become so popular over the last decade. It should be no surprise that the primary reason for your stockbroker’s offering of an SBL is that both the brokerage firm and he/she make money. Over many years, the source of revenues for brokerage firms has shifted from transaction-based commissions to fee-based investments, limited partnerships, real estate investment trusts (REITs), structured products, managed accounts, and income earned from lending money to clients in SBL and margin accounts. Many more investors seem to be aware of the danger of borrowing in margin accounts for the purposes of buying and selling securities, so the brokerage firms expanded their banking activities with their banking affiliates to expand the market and their profitability in the lending arena through SBL accounts. The typical sales pitch is that SBL accounts are an easy and inexpensive way to access cash by borrowing against the assets in your investment portfolio without having to liquidate any securities you own so that you can continue to profit from your stockbroker’s supposedly successful and infallible investment strategy. Today the SBL lending business is perhaps one of the more profitable divisions at any brokerage firm and banking affiliate offering that product because the brokerage firm retains assets under management and the fees related thereto and the banking affiliate earns interest income from another market it did not otherwise have direct access to. For the benefit of the novice investor, let me explain the basics of just how an SBL account works. An SBL account allows you to borrow money using securities held in your investment accounts as collateral for the loan. The Danger of Investing in SBL Accounts Once the account is established and you received the loan proceeds, you can continue to buy and sell securities in that account, so long as the value of the securities in the account exceeds the minimum collateral requirements of the banking affiliate, which can change just like the margin requirements at a brokerage firm. Assuming you meet those collateral requirements, you only make monthly interest-only payments and the loan remains outstanding until it is repaid. You can pay down the loan balance at any time, and borrow again and pay it down, and borrow again, so long as the SBL account has sufficient collateral and you make the monthly interest-only payments in your SBL account. In fact, the monthly interest-only payments can be paid by borrowing additional money from the bank to satisfy them until you reach a credit limit or the collateral in your account becomes insufficient at your brokerage firm and its banking affiliate’s discretion. We have heard some stockbrokers describe SBLs as equivalent to home equity lines, but they are not really the same. Yes, they are similar in the sense that the amount of equity in your SBL account, like your equity in your house, is collateral for a loan, but you will not lose your house without notice or a lengthy foreclosure process. On the other hand, you can lose all of your securities in your SBL account if the market goes south and the brokerage firm along with its banking affiliate sell, without prior notice, all of the securities serving as collateral in the SBL account. You might ask how can that happen; that is, sell the securities in your SBL account, without notice? Well, when you open up an SBL account, the brokerage firm and its banking affiliate and you will execute a contract, a loan agreement that specifies the maximum amount the bank will agree to lend you in exchange for your agreement to pledge your investment account assets as collateral for the loan. You also agree in that contract that if the value of your securities declines to an amount that is no longer sufficient to secure your line of credit, you must agree to post additional collateral or repay the loan upon demand. Lines of credit are typically demand loans, meaning the banking affiliate can demand repayment in full at any time. Generally, you will receive a “maintenance call” from the brokerage firm and/or its banking affiliate notifying you that you must post additional collateral or repay the loan in 3 to 5 days or, if you are unable to do so, the brokerage firm will liquidate your securities and keep the cash necessary to satisfy the “maintenance call” or, in some cases, use the proceeds to pay off the entire loan. But I want to emphasize, the brokerage firm and its banking affiliate, under the terms of almost all SBL account agreements,...

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Investors With “Blown-Out” Securities-Backed Credit Line and Margin Accounts: How do You Recover Your Investment Losses?

If you are reading this article, we are guessing you had a bad experience recently in either a securities-backed line of credit (“SBL”) or margin account that suffered margin calls and was liquidated without notice, causing you to realize losses. Ordinarily, investors with margin calls receive 3 to 5 days to meet them; and if that happened, the value of the securities in your account might have increased within that period and the firm might have erased the margin call and might not have liquidated your account. If you are an investor who has experienced margin calls in the past, and that is your only complaint then, read no further because when you signed the account agreement with the brokerage firm you chose to do business with, you probably gave it the right to liquidate all of the securities in your account at any time without notice. On the other hand, if you are an investor with little experience or one with a modest financial condition who was talked into opening a securities-backed line of credit account without being advised of the true nature, mechanics, and/or risks of opening such an account, then you should call us now! Alternatively, if you are an investor who needed to withdraw money for a house or to pay for your taxes or child’s education but was talked into holding a risky or concentrated portfolio of stocks and/or junk bonds in a pledged collateral account for a credit-line or a margin account, then we can probably help you recover your investment losses as well. The key to a successful recovery of your investment loss is not to focus on the brokerage firm’s liquidation of the securities in your account without notice. Instead, the focus on your case should be on what you were told and whether the recommendation was suitable for you before you opened the account and suffered the liquidation.

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