Causes of Action

Financial advisors and securities firms (as well as accountants, lawyers and others) owe duties to investors when making investment recommendations.  When those duties are breached causing the investor to lose money, the investor may have a legal claim for damages.

Some claims are based on intentional misconduct, but several others are not.  You may have a claim even if your broker had good intentions.

• Breach of Fiduciary Duty – Financial advisors or securities firms often have fiduciary duties to their clients. A fiduciary is obligated to place the interests of the person to whom he owes the fiduciary duty (the investor) above his own interests. Thus, your financial advisor may have a legal duty to place your interests above his own when giving you investment advice. Financial advisors are generally considered to owe fiduciary duties to their clients when exercising discretion or making investment recommendations. Fifty-six percent (56%) of FINRA arbitrations filed in 2010 included a breach of fiduciary duty claim. read more…
• Excessive Fees/Churning – The amount of fees to which a financial advisor or securities firm is entitled is typically governed by your contract. However, some investments are inherently unsuitable for most investors because an unreasonable portion of the investment will be consumed by fees. High fees may also present an incentive for a securities firm or advisor to engage in misconduct because they want to make more sales (see fraud/misrepresentation, failure to disclose and self-dealing). Another example of broker misconduct is churning, or causing excessive activity in the investor’s account for the purpose of generating commissions or other fees. read more…
• Failure to Disclose – When recommending an investment, a financial advisor has a duty to disclose facts that are important to the investment decision. Failure to disclose important facts can have the same effect as an affirmative misrepresentation, and may give rise to a claim. (see Fraud/Misrepresentation) read more...
• Fraud/Misrepresentation – Financial advisors are prohibited from making misrepresentations to investors. While not every misrepresentation gives rise to a claim, if you believe your financial advisor was not truthful with you regarding an investment and the investment has lost money within the last six years, you should consult an attorney for an evaluation of your potential case. Fraud includes circumstances in which your advisor failed to tell you information about your investment. If knowing the information would have affected your investment decision, you may have a claim for fraud/misrepresentation. Sometimes it is difficult to know what you were not told. If you did not fully understand an investment that was recommended to you, or if your investment did not perform as you were told, you may have been a victim of securities fraud. A securities lawyer can investigate your investment and determine whether important information was withheld from you. read more…
• Overconcentration/Failure to Diversify – Modern investment portfolio theory holds that the risk of a substantial decline in a portfolio’s value can be reduced by diversification both within asset classes (i.e., holding stocks in a number of different companies, rather than one company) and over different asset classes (i.e., holding a variety of equities, bonds, cash, real estate, and other investment types). Appropriate asset allocation considers each investor’s circumstances, including net worth, income, financial needs, and age — there is no “one size fits all” approach. Overconcentration or failure to diversify occurs when the investor’s assets (or a large portion of them) are placed into a single investment or investment class (or into a small number of investments or investment classes). Overconcentration or failure to diversify can result in substantial losses that could have been avoided with proper diversification. These losses may be recoverable through a legal, claim for damages. read more…
• Ponzi Schemes – Behind any legitimate investment is the idea that some underlying business activity is generating income that will provide capital to repay investors the amount of their investment plus a profit. A chief attribute of so-called Ponzi schemes is the use of money from new investors (or new investments from existing investors) to repay old investors as though the business is profitable, thus concealing the company’s true unprofitable condition. Unless uncovered sooner, Ponzi schemes eventually collapse when there is no longer sufficient “new money” to repay obligations to previous investors. read more…
• Self Dealing – When a financial advisor or securities firm recommends an investment only because the advisor or firm will make larger fees, self dealing may occur. A financial advisor cannot take advantage of his position by acting for his own interests and not for the interests of the investor. Certainly, advisors and others involved in recommending an investment are entitled and expected to make fees on the transaction. However, the size and nature of their fees should be disclosed to the investor. Especially with private placements and other non-traditional investments, promoters may have financial interests that are not adequately disclosed to investors or that create incentives that are contrary to the investors’ best interests. read more…
• Selling Away – FINRA rules generally prohibit financial advisors registered with a securities firm (broker-dealer) from soliciting investors to buy securities not offered or held by the securities firm. When a broker does so, it is called “selling away.” read more...
• Trustee Mismanagement – Investment fraud can also occur in the context of a trust or similar situation. Trustees must comply with the trust documents and also act according to their other legal duties, including the duty to avoid waste of trust assets. read more…
• Unauthorized Trading – Brokers and securities firms must have authorization from you to make trades on your behalf. Typically, brokerage accounts are “nondiscretionary,” which means each trade must be authorized by the customer before it is made. Investors can enter into written agreements giving their brokers or securities firms “discretionary” authority, which authorizes the broker or firm to make trades in the account as to which discretion has been granted without the investor’s prior approval of each trade . A broker or securities firm cannot exercise discretionary authority over your account without your prior written approval. Unless discretion has been properly granted by the customer, placing a trade without approval in advance from the customer is a violation of law. read more…
• Unregistered Securities – Federal law and the laws of most states, including Texas, govern whether a security must be registered. The sale of an unregistered security in violation of the law may give the investor the right to rescind the sale, i.e., to require the seller to repurchase the security for the amount invested (less any income received from the investment), plus interest. Private placements and other non-traditional investments (including notes, limited partnership interests, viaticals and oil and gas investments) are types of investments that should be reviewed by a securities lawyer for possible unregistered securities claims. read more…
• Unsuitability – Before recommending an investment, an advisor must have a reasonable basis to think the investment is appropriate (“suitable”) for your financial circumstances and investment objectives. The recommendation of unsuitable investments is one of the most common types of advisor misconduct. FINRA reports that more than one in three arbitration cases that are filed include allegations of unsuitability. read more…