Securities can be very complex financial instruments. Due to their potential complexity, many investors who purchase securities often must rely on the guidance and professional expertise of a financial advisor or brokerage firm. Financial advisors or brokerage firms are regulated by the SEC, FINRA, state regulators, among others, and they have a duty to oversee your accounts and only make recommendations that are suitable for the individual investor. Financial Advisors and brokerage firms who fail to provide investors with suitable recommendations when recommending securities may be held liable for any losses associated with their recommendations. Investors who suffer losses as a result of unsuitable recommendations by their financial advisor and/or brokerage firm may be able to recover their losses.
Securities fraud attorney, James P. Galvin, has handled numerous Financial Industry Regulatory Authority (FINRA) arbitration cases. These cases have included claims for, among other things, unsuitability, fraud, negligence, failure to supervise, and breach of fiduciary duty. In addition to practicing as a securities attorney, Mr. Galvin has worked as a financial planner and previously held FINRA Series 6, 7, 63, and 66 Securities Licenses, as well as various insurance licenses. Mr. Galvin successfully completed The University of Georgia Terry College of Business Executive Program for Financial Planning Certification with Distinction. He has formerly been registered with broker-dealers in both the employee and independent contractor platforms. Mr. Galvin’s financial and securities industry background has given him a unique and valuable perspective in evaluating potential securities fraud claims and in understanding how brokerage firms typically defend fraud cases.
If you suffered losses investing with a financial advisor and brokerage firm, and would like a free consultation with a securities fraud attorney, then please call Galvin Legal today.
Understanding Securities Laws and Regulations
The United States has a wide body of complex laws and regulations that are intended to protect investors from securities fraud. The Securities Act of 1933, the Securities Exchange Act of 1934, and the Investment Advisers Act of 1940, and the rules promulgated by the United States Securities and Exchange Commission (SEC), all work together to protect the investing public.
State regulations also play an important role in protecting the rights of investors. State agencies regulate certain aspects of the industry within their jurisdictions. The Financial Industry Regulatory Authority (FINRA), the self-regulatory organization tasked with overseeing broker-dealers and their associated persons, has also enacted a number of rules that its members and their associated persons are required to follow. When customer disputes arise, the claim is generally brought in FINRA’s Dispute Resolution forum. Federal and state laws, and the rules and regulations promulgated by their agencies, work together to form the framework by which defrauded investors can seek compensation for their losses.
Common Securities Fraud Claims
It can be difficult to determine whether investment losses are a result of securities fraud, negligence, or other types of bad behavior, or whether the losses are simply due to normal market fluctuations. If you have suffered investment losses and are considering filing a securities fraud claim, it is important to thoroughly analyze your claim to determine whether you have a potential claim for which you may recover. Common types of disputes include:
- Breach of Fiduciary Duty: The legal obligation that advisors act in the best interests of clients is known as a “fiduciary duty.” A claim for breach of fiduciary duty contends that the advisor’s actions were not careful or loyal to his or her client, and therefore, not in the client’s best interest. Firms are required to research every security it offers to ensure that it is a sound investment and that it is suitable for the firm’s client base. This is required to enable firms to maintain control of the products offered by their representatives and to properly supervise what products are being recommended to the firm’s clients. Firms are required to supervise their advisors and can be held responsible for investor losses as a result of their failure to supervise when advisors breach their fiduciary duty to clients.
- Misrepresentation or Omission of Facts: Brokers are prohibited from omitting material facts, making misrepresentations, and other types of securities fraud. Even if it was an honest mistake, it does not excuse the fact that it caused you to lose money. You may be entitled to recovery of your losses whether they were the result of mistake or fraud.
- Unsuitable Investment Recommendations: Under FINRA Rule 2111, financial advisors and brokerage firms are required to have a reasonable basis to believe that any investment recommendations are suitable for their customers. If a broker recommends an unsuitable investment to an individual, then that person may be subjected to unnecessary risk and suffer losses.
- Failure to Diversify Investment Portfolio: “Don’t put all your eggs in one basket” is a common adage and describes the concept of diversification, and nowhere is it more applicable than in the world of investing. FINRA Rule 2111 requires brokers to recommend investments that are designed to suit the investor’s unique investment objectives and risk tolerance. In addition to the requirement that brokers only recommend portfolios designed to meet the unique investment objectives and risk tolerance of the individual investor, brokers are required to recommend investments that provide adequate diversification in their overall portfolios.
- Excessive Trading: Churning or excessive trading occurs when a broker engages in excessive trading of securities in a customer’s account with the primary purpose of generating commissions. Brokers and brokerage should only recommend or execute securities transaction as part of a broader investment strategy. If a broker is trading for no other reason than to generate fees or commission payments, then they are engaged in churning, a clear violation of securities industry rules.
What You Need to Know About Securities Arbitration and Mediation
Brokerage firms’ customer agreements almost universally contain mandatory arbitration clauses. Forced arbitration provisions are usually enforceable. This means that if you have a securities claim against your broker, you will need to bring your claim in FINRA Dispute Resolution forum.
This FINRA arbitration process is complex and it can be confusing. If you are considering filing for securities arbitration or making any type of claim against your broker or brokerage firm, you should obtain high-quality legal representation. You should hire a securities fraud attorney who has extensive experience bringing claims in FINRA’s Dispute Resolution forum.
Contact Our Securities Fraud Attorney Today
Galvin Legal, PLLC’s our securities fraud attorney has the background and experience needed to help investors attempt to recover their investment losses. If you suffered investment losses as a result of a recommendation by your broker or brokerage firm and would like a free consultation with a securities fraud attorney, then please give us a call today.