Broker Misrepresentation Lawyer

fraud or misrepresentation investment lawyer

Many people turn to investment advisors and stockbrokers to help them make sound investment decisions to grow their wealth and reach their financial goals. However, fraudulent activity or misconduct by brokers or financial advisors can lead to innocent people suffering substantial financial losses, including from unsuitable investments that consistently decline in value and theft of client funds. If you think your broker or investment advisor has committed investment fraud against you, contact Erez Law PLLC for a free consultation with a securities lawyer to discuss your legal options.

What Is Misrepresentation?

Broker fraud occurs when a broker or brokerage firm knowingly engages in fraud to deprive clients of their funds. Misrepresentations involve making false or misleading statements or concealing material information about an investment. Stockbrokers and advisors subject to Financial Industry Regulatory Authority (FINRA) regulations must abide by FINRA Rule, FINRA RULE which states: “No member shall effect any transaction in, or induce the purchase or sale of, any security by means of any manipulative, deceptive, or other fraudulent device or contrivance.”

Common Types of Broker Misrepresentation

Some of the most common examples of fraud or misrepresentation brokers or investment advisors commit include:

  • Pump-and-Dumps – In a pump-and-dump, the investment firm purchases a low-priced stock and then makes false, exaggerated, misleading, or untrue statements about the company to boost the stock price. Clients then buy the stock, increasing its price and allowing the broker to sell their stock for profit.
  • Misappropriation of Client Funds – Brokers or investment advisors may engage in outright theft or embezzlement by transferring client funds to the broker’s account or using them to make trades and pocket the profits.
  • Misrepresentation or Omission of Material Facts – Investment advisors may fail to provide investors with proper disclosures about a proposed investment. Brokers are required to disclose material facts about the investment, enabling investors to make an informed investment decision. Misrepresentation or omission of material facts may lead clients to invest in a stock that suffers a loss when they would not have invested if they received all material facts.
  • Unauthorized Trading – Broker or advisor misconduct can also take the form of unauthorized trading, which occurs when a broker trades without the client’s approval. Clients may authorize their broker to make trades consistent with their chosen investment strategy or require the broker to obtain the client’s authorization before any trade.
  • Excessive Trading – Stockbroker misconduct can include excessive trading, also called “churning.” Brokers may engage in excessive trading when they make trades to generate commissions rather than as part of a legitimate investment strategy approved by the client.
  • Improper Investment Strategy – Stockbrokers and investment advisors must assess the client’s investment goals and risk tolerance to identify an appropriate investment strategy. Brokers and advisors may engage in misconduct when they fail to determine an appropriate investment strategy for a client or choose a particular investment that does not suit the client’s situation. For example, a broker may engage in misconduct by trading in high-risk securities for a client nearing retirement who prefers a conservative investment strategy.
  • Offering Unregistered Securities – Broker misconduct may include offering unregistered securities that don’t qualify for an exemption (or for which the client does not qualify).
  • Insider Trading – Insider trading occurs when someone executes stock market transactions based on non-public information about the investment. Insider trading also occurs when a person divulges non-public information about a stock to another party, even if the person divulging the information does not make trades based on the information themselves. The Securities and Exchange Commission investigates and prosecutes incidents of insider trading.
  • Ponzis – In a Ponzi scheme, the advisor uses funds from new investors to pay dividends to existing ones. Misguided advisors draw in new investors and keep current investors from withdrawing their principal investment based on fabricated returns that typically exceed the market’s performance.
  • Altering Financial Records – Misconduct can also include altering a client’s brokerage statements or financial records to conceal poor investment decisions by the broker or other forms of misconduct.

Common Signs of Misrepresentation

Some of the top signs of broker misconduct include:

  • Trades or Investments You Do Not Recognize – Clients should review their brokerage statements for trades or investments they do not remember discussing with their broker or advisor.
  • Exaggeration of Investment Returns – Promises of returns that significantly exceed the performance of market tracking indicators like the S&P 500 may signal fraudulent behavior.
  • Failure to Disclose Adequate Information – A red flag of broker misconduct is when the broker fails to disclose conflicts or other important information about a proposed investment.
  • Failure to Conduct a Suitability Assessment – Your advisor should discuss your investment and financial goals, risk tolerance, and other factors to determine if an investment is suitable for you.
  • Significant Investment Losses – Consistent losses on your investments, especially during growth in the broader market, may signal fraudulent behavior by your advisor or broker.
  • Regularly Proposing Risky Investments – Brokers who push speculative investments may do so as part of a Ponzi or pump-and-dump scheme.
  • Unauthorized Trading – You may want to switch advisors if your current one makes trades you have not approved.

Erez Law’s Approach to Resolving Misrepresentation

The legal team at Erez Law PLLC has significant experience fighting on behalf of clients who have suffered investment losses due to broker fraud or misconduct. Over the past 35 years, we have recovered over $200 million for clients, including having tried more than 50 cases in FINRA arbitration.

When you turn to us for help with a broker fraud or misconduct claim, our team will thoroughly investigate your claim to secure evidence of misconduct. We will evaluate the scope of your financial losses attributable to the misconduct and identify liable parties. When necessary, our firm can represent you in FINRA arbitration. We handle the details of filing your FINRA claim, including the Statement of Claim and FINRA Submission Agreement, to initiate the arbitration process.

Call If You’ve Suffered Financial Losses from Misrepresentation

If you suffer losses due to broker fraud or misconduct, get the legal help you need to demand financial recovery and justice. Contact Erez Law PLLC today for a free consultation to discuss how we will fight to hold a fraudulent broker or advisor accountable for their misconduct.