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Can I Sue My Broker? Dollar

Yes! The amount you may recover depends upon the investor, the activity and/or the product or investment. Stoltmann Law Offices has represented close to 1000 defrauded investors in lawsuits and FINRA arbitration actions against brokerage firms and registered investment advisors in the last 17 years. Each year billions of dollars of investments are fraudulently peddled to the elderly, retired, near retired, and retail investors.

Types of Investment Fraud

There are 4 major questions we ask when evaluating a client’s case against a stockbroker, brokerage firm or registered investment advisor…

The first question we ask when determining whether we can recover the client’s investment fraud losses is “what type of investment was recommended?” Some investments were fraudulently marketed by the brokerage firm selling them and therefore most of the clients who purchased the product would have an actionable securities fraud arbitration action. For example, dozens of brokerage firms recommended GPB Capital, Bakken and Coachman Oil & Gas Funds, Woodbridge, SteadyServ, and the NorthStar REITs . We have reviewed marketing material and secured in discovery internal emails that cause us to believe the true risks of these investments were not disclosed.

Investor Profile

The second question we ask is who the investor is. In conversion claims, selling away cases, theft or ponzi schemes or even product cases like the UBS Puerto Rico Closed-End Funds or the Merrill Lynch Strategic Return Notes, or leveraged exchange traded fund cases, the profile of the investor is not very important. We’ve successfully represented in FINRA arbitration cases individuals worth over $100 million, successful entrepreneurs, professional athletes, doctors, and others who have a high degree of sophistication or financial resources. Regardless of a client’s sophistication, they are entitled to full, fair and complete disclosure and not to be defrauded through investments.

Common Types of Investment Fraud Claims

The third question we ask is what type of claim the investor has against the firm. There are approximately nine common causes of action and claims we make in lawsuits against brokerage firms. These claims include the following:

Breach of Contract: A breach of contract claim is usually based off of the new account agreement. Clients at every brokerage firm in the U.S. and most registered investment advisors are required to sign a new account agreement when they open an account. These agreements usually mandate and require that the brokerage firm handles the account in accordance with the rules and regulations of the securities industry. These include the FINRA Conduct Rules like the requirements to perform due diligence into investments, make suitable investment recommendations, and not to churn a client’s account.

Negligence: These claims are based on the duty of the brokerage firm and the client to exercise due care in connection with the account comparable to other financial professionals in the same position. A classic claim we have made is the failure of the financial advisor to asset allocate and diversify a retired client’s account. Often the advisor will concentrate the client’s account in all equities or in illiquid alternative investments like private placements and REITs, and not allocate anything to fixed income investments like government bonds, CDs and other conservative investments.

Failure to Supervise: Failing to supervise a financial advisor is extremely common. Unfortunately, supervision is expensive and is not a money making activity for brokerage firms. Therefore, while brokerage firms give lip service to the importance of supervision, usually there is little to no real supervision of financial advisors. For example, reasonable supervision requires a branch office manager to close an account down if the broker is recommending trading that is so aggressive and speculative, it all but guarantees the client’s account loses money. Since the firm and the branch office manager earn part of the churned fees, there is little incentive for a supervisor to close an account down. Typical supervision at brokerage firms means the firm will send a few generic happiness letters to try to cover the firm in case the client files an arbitration claim.

Failure to Execute: Brokerage firms and advisors are required to carry out a client’s order. Sometimes the broker will forget to enter an order. Other times the advisor may disagree with the order and simply not put it in, possibly because he wants to get his preferential clients, or even himself, out first.

Breach of Fiduciary Duty: In some states, every broker at every brokerage firm owes a legal fiduciary duty to a client (California). In other states, courts have concluded if a client reposes “trust and confidence” in the broker, then he is a fiduciary (Illinois). Each state has different laws on whether a broker is a fiduciary or not. As a fiduciary, brokers and investment advisors have several obligations. First, he must asset allocate and diversify a client’s accounts. Second, he must manage accounts in a manner directly in line with the needs and objectives of the customer. Third, the fiduciary must keep abreast of all changes in the market, which could affect his customer’s interest, and must act responsively and sensibly to protect those interests. There are many other duties of a fiduciary but these are the most common.

Misrepresentations and Omissions: All material risks must be disclosed to clients and a broker cannot misrepresent material risks to clients. Classic misrepresentations and omissions in securities fraud cases include the following: Touting the stock of a company as a “guaranteed investment” or “secured” when in fact it is not; failing to disclose the degree of risk associated with an investment; and making overly positive or optimistic statements about an investment.

Churning or Excessive Trading: Churning and excessive trading is prohibited under most state securities acts. While there are differences between churning and excessive trading, the hallmark of both is trading designed to generate fees and commissions for the broker and brokerage firm.

Selling Away and Ponzi Schemes: Unfortunately, brokers and financial advisors have engaged in hundreds of Ponzi and selling away schemes at virtually every major and regional brokerage firm. Selling away and Ponzi schemes are investments in fraudulent companies, including companies and investments that do not exist, that are not registered, and/or are not approved by the broker’s firm. Advisors solicit their clients to invest in these phony companies through vehicles like promissory notes, bonds, limited partnerships, or even claim that they are investing their client in publicly-traded investments and create fake account statements for their clients. Instead, they steal their clients’ assets and use them for personal expenses or to pay back other investors. Brokerage firms are required to supervise their advisors and as a result can be held responsible for victims of these schemes.

Unsuitable Investments: Brokerage firms, brokers and registered investment advisors have a duty to make appropriate and suitable investment recommendations. Each state defines what is a suitable recommendation differently. Classic unsuitable recommendations? 1) The sale of speculative, high risk stocks to a retired investor or a client with limited financial resources; 2) Concentrating an investor’s portfolio in one or a few securities or types of securities; 3) Failing to asset allocate a client’s portfolio; 4) Utilization of margin for a client with limited financial resources.

What Kind of Legal Action is Required?

The fourth question we ask is whether the client should sue in court, in arbitration, or partake in a class action lawsuit.

One of the most common questions we get from people who believe they may have a valid securities fraud clam is whether they have to file an arbitration claim at FINRA (Financial Industry Regulatory Authority), JAMS (Judicial Arbitration and Mediation Services), AAA (American Arbitration Association) or a lawsuit in court.

Most brokerage firms and registered investment advisors have a binding arbitration clause in the new account agreement that they require the client to sign prior to opening a brokerage account. While binding arbitration has been criticized by some, usually arbitration is faster and cheaper than court litigation. For example, it is not uncommon for class action lawsuits to be tied up in court for 60 months or longer. Arbitration claims usually take twelve to eighteen months.

Free Evaluation of Your Claim

Injured investors should contact a lawyer to discuss whether they might have a valid arbitration claim against a brokerage firm. While most brokers and advisors do not violate the law, unfortunately a sizable minority do. Most securities lawyers or law firms will provide a free initial evaluation. Stoltmann Law Offices almost exclusively takes cases on a contingency fee basis. This means the client is not responsible for our attorney fees if we do not win and recover.

To learn more about suing to recover investment losses, please contact our law firm at 312-332-4200.

Client Reviews
Working with Joe was an absolute pleasure considering the unfortunate situation I was dealing with! He’s very knowledgeable and easy to communicate with. He kept me informed in all aspects of my case in a timely manner. Whenever I contacted him with a question he responded quickly. His expertise came through for me! I would highly recommend him! Joanne
I hired Joe and his firm Stoltmann Law office to represent me in a case where my investment guy had lost a substantial amount of money in my account. He invested in some very speculative energy stocks which should not have been in my portfolio due to my request for a very conservative investment portfolio. I was very impressed and satisfied with the representation and negotiations on my behalf by Joe and Stoltmann Law offices and I would definitely recommend them to anyone who would be in need of a very fine firm. Anonymous
Never having a need to file suit against anyone, let alone a major multi-national brokerage firm, I was at a loss to find a legal firm to assist me. After much searching, I found Stoltmann Law Offices, PC. They were very diligent and professional in the handling of my case and I am glad that I retained their services. I would definitely refer them to anyone seeking similar help. Donald F.