Brokerage Firm Accountability: Holding Institutions Responsible for Investment Fraud

Securities Fraud Attorney

When brokerage firms and their affiliated brokers and advisors engage in negligent or wrongful behavior with the investments in their care, they put innocent investors at risk of serious financial loss. The legal team at Erez Law, PLLC, works hard to hold firms and brokers accountable when careless actions or intentional misconduct harm our clients’ financial future. Contact our firm today for a free consultation to discuss your options for holding financial institutions responsible for investment fraud.

How an Investment Fraud Lawyer Can Help

Proving that your brokerage firm or investment advisor committed misconduct with your account or funds can involve complex facts and legal issues. In addition, pursuing claims against brokers and firms almost always involves arbitration managed by the Financial Industry Regulatory Authority (FINRA) or private arbitration. Hiring an experienced investment fraud lawyer from Erez Law, PLLC, can help you seek financial recovery and accountability for your losses. Let our firm guide you through the legal process by:

  • Filing a compelling statement of claim to initiate arbitration against your brokerage firm or investment advisor
  • Leveraging our extensive experience to select fair, knowledgeable arbitrators for your case
  • Thoroughly investigating your claims to recover evidence of negligence or misconduct by your brokerage firm or advisor
  • Consulting with top financial and market experts to develop evidence and legal arguments that prove how your broker’s actions caused your losses and calculate the extent of those losses
  • Vigorously negotiating for a settlement that provides you with fair and full compensation
  • Preparing your case for an arbitration hearing if a liable broker firm or advisor won’t agree to a fair settlement

Erez Law, PLLC, has over 35 years of experience advocating for the rights of investors harmed by unscrupulous brokers. Our nationally recognized law firm has tried over 50 cases in complex arbitration and recovered more than $200 million for our clients.

What Is Investment Fraud?

Investment fraud refers to a wide range of unlawful, unethical, or negligent activities by a brokerage firm or a stockbroker/investment advisor. Investment fraud may occur due to the acts of an individual advisor/broker or may result from a firm’s institutional policies that encourage or tolerate advisor/broker misconduct. Investment fraud typically involves a firm or broker making misleading representations or promises about a proposed investment or strategy, failing to tailor investments to a client’s needs, goals, and risk tolerance, or engaging in unauthorized activities with a client’s account.

Common signs of investment fraud include:

  • A client suffers substantial losses, especially over a short period.
  • An investment continually loses value despite growth in the overall market.
  • An investment’s financial results regularly fall below previously announced performance expectations.
  • A client’s account has unknown and unauthorized transactions.
  • A broker/advisor misrepresents or fails to disclose material information about a proposed investment.
  • A broker/advisor stops returning a client’s calls and emails.
  • A client incurs tax liabilities for an investment that appears to lose value.

Although financial losses are an ever-present risk of investing, sometimes there are other explanations. An experienced attorney can review your situation to determine whether you may have investment fraud cases against an advisor or brokerage firm.

Common Types of Investment Fraud

At Erez Law, PLLC, our dedicated legal team advocates for the rights of investors who have sustained financial losses due to brokerage firm or stockbroker misconduct, such as:

  • Unauthorized trading: Unauthorized trading occurs when a stockbroker or brokerage firm engages in an investment transaction on behalf of a client without obtaining the client’s consent. Unauthorized trading can also occur when a broker or firm makes trades that do not comport with the investment strategy the client has agreed to.
  • Recommending unsuitable investments: Brokerage firms and stockbrokers/financial advisors may bear liability to investors when they recommend investments that do not align with an investor’s specific needs, investment goals, risk tolerance, and time horizon. FINRA rules require advisors to conduct due diligence into each client’s circumstances to properly evaluate the suitability of a particular investment or investment strategy.
  • Misrepresenting, omitting, or concealing material facts: Investors may have a legal claim against a broker or firm that knowingly or recklessly misrepresents, omits, or conceals material facts about an investment, including not correctly disclosing material risks and costs associated with an investment or making unrealistically optimistic projections about investment performance/returns.
  • Churning/excessive trading: Excessive trading, or “churning,” refers to the practice of a brokerage firm or advisor who makes excessive trades on a client’s account to generate additional commissions and fees. Trading activity can become excessive when it exceeds the client’s risk/cost tolerance and investment goals.
  • Overconcentration: Also called “failure to diversify,” overconcentration occurs when a brokerage firm or investment advisor allocates an unreasonably high percentage of a client’s investment portfolio into a single security, investment product, or industrial sector. Securities industry standards encourage diversifying a client’s portfolio to mitigate catastrophic losses when a particular investment or industry sector suffers a significant downturn.
  • Failure to supervise: Many acts of misconduct occur due to the actions of an individual advisor/broker, making that individual primarily liable for a client’s financial losses. However, financial institutions such as brokerage firms may also bear liability for a client’s loss due to the firm’s failure to establish and maintain systems to oversee the actions of associated advisors and brokers.

When Is a Brokerage Firm Responsible for a Broker’s Actions?

A brokerage firm may bear financial responsibility for an individual broker’s misconduct with client accounts or funds under various circumstances. Firms that employ brokers/advisors who engage in misconduct may bear vicarious liability for a client’s financial losses as an employer. However, many brokerages work with individual brokers and advisors through a partnership or contractor arrangement, meaning the firm does not qualify as the broker’s employer.

In some cases, brokerage firms may also bear direct responsibility for a broker’s/advisor’s misconduct or the consequences of such misconduct. A firm that works with a broker/advisor who has a known history of misconduct can be held liable for negligent retaining or hiring. Clients can also hold brokerage firms liable for losses when firms instruct their members to engage in misconduct or know about members’ misconduct and fail to take corrective action. Firms may also bear liability for client losses due to the firm’s failure to supervise brokers’/advisors’ actions.

Contact Us Today for a Free Case Consultation

If you’ve suffered investment losses due to investment or securities fraud, get experienced legal advice and advocacy to help you recover compensation. Contact Erez Law, PLLC, today for a free, confidential claim evaluation to learn how our investment fraud attorneys will aggressively hold financial institutions accountable for misleading.