Stockbroker lawsuits, or stock broker lawsuits, take many forms. Some stockbroker lawsuits are caused by stockbroker fraud or dishonesty. Other lawsuits are caused by stockbroker negligence. Stockbroker negligence means that the stockbroker did not pay as much attention to either their client or their client’s investment that the law requires. In some cases the stock broker breaches a contract. In some cases a stockbroker violates their fiduciary duty to their client.
One of the most common ways that dishonest stockbrokers take advantage of their clients is by “churning” their accounts. Churning an account means that a broker makes more sales and/or more purchases than is necessary and appropriate. The reason that a stockbroker would churn an account is to cause trades that will create a commission that makes the stockbroker money at their client’s expense.
Another common stockbroker lawsuit is a result of stockbrokers ignoring the “suitability” of a particular investment for a particular investor. A Stockbroker should evaluate a particular investor’s risk tolerance, state of the investor’s finances and their investment objectives. An example of a case where the suitability of an investment is in question is when a stockbroker or financial adviser will to invest all of an particular investor’s money in stocks.
Other suitability cases occur when a stockbroker or financial adviser instructs or encourages an investor to borrow money from the brokerage on what is called “margin” or to invest heavily in a single stock or mutual fund or collection of stocks or funds that are too similar or closely related. A suitability case might also involve a particular investor’s money being invested in a speculative investment when the investor’s personal investment philosophy, their age or their financial situation in general would require a more conservative investment.
Many cases that involve stockbroker fraud or negligence must be brought in an arbitration proceeding. Many stockbroker fraud arbitration proceedings must be brought before a FINRA arbitration. FINRA is an acronym that stands for Financial Industry Regulatory Authority. FINRA arbitrators have the advantage of being experienced and knowlegeable about financial dealing in general. Also, the arbitration process is generally quicker than a traditional court case. The procedures are somewhat different than in a typical courtroom so it is necessary for an attorney to be familiar with the differences.
A lawsuit against a stockbroker or a financial adviser is different than a lawsuit by a shareholder that alleges that the corporation itself did or is doing something dishonest or incompetent. Taking action against a corporation or the corporate officers typically occurs in a shareholder lawsuit that is called a “derivative action”. Regardless of which type of situation that a person finds themselves in, Stephen Foster of Simpson, Foster & Gold always gives an absolutely free consultation with no obligation or pressure so that someone can find out if there is anything that they can do.