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INVESTOR CLAIMS
Customer Investor Disputes
Stein & Stein, P.A., Attorneys & Counselors, represents individual investors in their claims for investment and market related losses. Stein & Stein, P.A. also defends securities brokerage firms and securities brokers in customer disputes and claims; which provides Stein & Stein, P.A., with a unique perspective of both sides of a dispute. Below you will find a list of the different types of claims and categories of investment disputes. It is important to note, that just because an account or an individual investment has decreased in value; it does not necessarily imply that a broker or investment adviser has acted inappropriately. A professional consultation may be necessary, should an investor have concerns about the representations of their broker or the performance of an investment account. We invite you to call us to discuss your concerns. We will advise you of your rights and remedies under the law.
Click below links to learn more about areas of Customer Investor Disputes:
Unsuitability & Negligence
Over-Concentration/Failure to Diversify
Hedging/Collars/Protective Puts
Breach of Fiduciary Duties
Failure to Supervise
Fraud/Misrepresentations/Omissions
Unauthorized Trading
Churning
Margin Abuse
Options
Other Financial Products
Unsuitability & Negligence
Unlike when you purchase a car or a new suit, a stockbroker recommending the purchase of securities has a requirement to recommend to you only investments, which are suitable for you, based upon your account objectives, your risk tolerance, and your sophistication and numerous other factors. Much like your fingerprint, a person's financial objectives are unique. For example, if you are an individual who wants to accept risk for the potential of a greater return, then your investments should be quite different than that of a retiree who seeks capital preservation.
Securities brokers are required by the SEC, FINRA, state statutes, administrative regulations, and the brokerage firms to know their clients. This requirement is key to investing because without the knowledge, brokers cannot make suitable investment recommendations. If the brokers do not make suitable recommendations, your investments may be subject to more risk then you are willing to tolerate. When loses occur, your lifestyle, ability to retire, and sense of security could be irreplaceably damaged.
To determine suitability, the securities broker and/or brokerage firms must first determine account objectives. These objectives can range from speculation to capital preservation. Your risk tolerance can range from not being risk adverse, in which all of your capital and/or investments are constantly at risk, to where you are totally risk-averse and cannot or do not want to risk losing any capital. If your broker did not invest your assets pursuant to your account objectives and risk tolerance, you may be able to recover your losses.
Over-Concentration/Failure to Diversify
Most investors have heard of the saying, “Do not put all of your eggs in one basket.” The problem is that most investors rely upon their securities brokers to make that determination. When the broker fails to recommend that the investors diversify the account, the client is subject to much more risk of loss and much more volatility. Not only can the individual investment be over-concentrated, but the types of sectors of public securities can be over-concentrated and even the types of investment classes can be over-concentrated. Diversification is a key requirement to protecting clients’ assets.
Hedging/Collars/Protective Puts
Some clients who have large positions of stocks do not want to diversify their holdings. When this occurs the clients should be advised by their brokers of the risks associated with over-concentration and strategies to limit the risk of holding concentrated positions. There are many ways of protecting concentrated positions with either little cost and/or by paying a relatively small premium. Some of these strategies include hedging, protective puts, stock collars, exchange funds, and pre-paid forward sales.
Breach of Fiduciary Duties
The securities brokers and stock brokerage firms owe their clients numerous fiduciary duties, including, but not limited to following industry guidelines, best execution, acting in a non-negligent manner, and complying with rules of fair practice.
Failure to Supervise
Securities brokerage firms have a duty to properly engage, train, and supervise the actions of its brokers. When the brokerage firm fails in these activities, that failure can cause significant losses to its client.
Fraud/Misrepresentations/Omissions
When a securities broker makes a material misrepresentation or omission of fact about an investment strategy or an individual investment, the firm and broker may be responsible for the investment losses. Each securities broker has a responsibility to make sure that the information conveyed to their clients regarding the investment is accurate and complete.
Unauthorized Trading
In a non-discretionary account, a securities broker is limited to the authority allowed by him by the client. If the broker exceeds that authority by placing a trade without the client’s authority or failing to place a trade ordered by the client, then the securities broker has violated industry standards and rules. If this occurs, the broker will be held liable for the loses caused by their actions.
Churning
When a broker excessively trades securities in an account for the purpose of generating commissions, he/she has violated industry standards and rules. Even if the account is not a commission account, but a fee-based account, the broker can still excessively trade the account, which is a negligent action.
Margin Abuse
Use of margin in a brokerage account magnifies the potential profit and the potential loss. It increases volatility of the account and can actually lead to the account having a negative balance, in which the client owes the brokerage firm money. Therefore, the use of margin should only be used when the client is fully aware of all the risks. When the broker fails to notify the client of the risks, the broker may be liable.
Options
Option trading strategies require that the client be sophisticated and in certain circumstances able to accept significant loses in the account.
Other Financial Products
The securities industry is continually generating new financial products. Recent problems have occurred with many of these products and investors must be aware of the risks of such products.
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