As soon as we hit our peak earning years, we are taught that we need to invest and build a nest egg. If we end up finding ourselves in a higher earning bracket, then hiring a broker to help care for our money seems like a smart move. Unfortunately, there are times when you come across dishonest brokers who will treat your money like their own personal bank, or will take on so much risk that you end up suffering tremendous losses. If as an investor you feel as though your accountant or broker has bamboozled you and your finances, then you may look into beginning legal proceedings. This primer will help outline the different scenarios in which you can place a claim, and give you an idea of how things will proceed within the legal system.
1. Unsuitability of Investment
Claiming that the accountant or broker made an unsuitable investment is a popular complaint within this realm, but it can be difficult to prove in the court of law and often falls flat. This claim states that the broker made poor investments on the client’s behalf when they really should have known better. The trading patterns or the type of securities made were inconsistent, lacked coherence with the client’s portfolio, or were not in agreement with the planned objectives as set out in accordance with the investor and the accountant. It requires a lot of paperwork to be submitted for evaluation, but an investigation can proceed with some of the evidence.
2. Churning of Assets
This is another common complaint lobbed at brokers who’ve run amok, and unlike unsuitability, they can be easier to prove. A client can ask to get help for investment losses when the accountant was involved in trading brazen amounts of money, and they were clearly in over their heads. These kinds of trades require a broker of a certain caliber or certification to control in order to be validated. If the individuation in question was trading excessively without asking the customer to help initiate these transactions, then that may be the basis for a case. So the churning of assets consists of transactions in which there was a minimum of four or six turnovers in a short amount of time, in a manner that seemed chaotic.
3. General Negligence – Lack of Oversight
A broker can be negligent if there is clear evidence that they have failed to supervise their client’s portfolio. This seems to be close to churning in some ways since a certain amount of control isn’t being exercised, and so gross negligence takes place. Legally speaking, negligence and failure to supervise financial transfers are not often used to build a case, since they’re not as easy to prove. However, if there is a compelling paper trail, then the lawyer may be able to prove in court that the financial manager did not act faithfully to fulfill their duties to clients or even their firm’s employees.
4. Execution
No, no one is going to the guillotine or being sent to face down a firing squad. Execution is the completion of a sale or buying of security. It occurs as soon as it gets fulfilled, and not when an investor simply asks to get it filed. The investor works to submit the trade they’re interested in, send it to the broker, and then the latter party is charged with determining the best way for it to be implemented – or execution.
This is a scenario in which legal malfeasance can be proven, and the broker can be taken to task for the proper execution of the asset in question. This is usually a fairly straightforward claim to prove since the sequence of events is clear, and the problems are easy to pinpoint. Whereas the issues with negligence or churning are a bit subjective, the problem with the execution is often glaring enough for any lawyer to catch right away.
5. Securities and Investment Fraud
This is one of the most serious cases of investment negligence, and it’s the one that usually hits the news. No one will forget the Madoff scandal, for example, which is one of the biggest Ponzi schemes of all time. Securities and investment fraud – or, better known as securities fraud for short – tends to include illegal activities such as mischaracterization of the facts, or some willful omission of different truths evident in a client’s portfolio. It also encompasses unauthorized trading which the client knows nothing about and clear misuse of their funds. Fraud on this scale typically involves more than one client and can lead to a major case with more than two parties involved.
A financial advisor or stockbroker who lies point-blank to their clients and builds up dreams of unimaginable gains without being upfront about how they are creating these overinflated numbers then entails major fraud. Sadly, this level of fraud isn’t usually caught till clients have lost unimaginable quantities of money, and in this case, a legal team is hired to try to retrieve some of the client’s losses. If the securities fraud is on a massive scale, an indictment will happen but the return of funds is less secure – as many Madoff victims can attest.
6. Failure to Diversify
This one is pretty clear from the onset. One of the first rules of investing is to not put all your eggs in one basket and diversify your assets. Your financial advisor or stockbroker should be able to do this, and an overconcentration of finances is not just a rookie mistake, but it’s a fairly egregious one that can be grounds for a lawsuit. A failure to diversify usually leads to tremendous losses since the investment advisors demonstrate a clear lack of professionalism in their work, and a lack of efficiency when assisting others with managing their financial affairs.
The vast majority of investors weren’t born with a silver spoon in their mouths, and it’s disheartening for anyone to lose hard-earned money due to someone else’s incompetence or lies. Especially when it’s a hired professional who was supposed to help you set aside money in case of an emergency. If any of the scenarios outlined above has happened to you, then rest assured that you definitely have a case on your hands.
