Should Financial Fraud Victims Hire a Lawyer?
When you trust your hard earned money to an investment advisor, you are hoping that your assets will grow and that your savings will be protected.
Sadly, in far too many cases, financial advisors and brokerage firms breach the trust of investors. Not only does that nest egg not grow, but major and often wholly avoidable investment losses are sustained as result of negligence or outright fraud.
Unfortunately, investment fraud is a very serious problem in the United States. Each year, investors lose out on billions of dollars due to fraud or negligence. If you are an investor who has been defrauded, you likely have legal options available.
At Sonn Law Group, our investment fraud lawyers are fierce advocates for our clients. We fight aggressively to hold bad brokers and bad brokerage firms legally accountable and have recovered hundreds of millions for our clients. If you or your loved one has suffered major investment losses, please contact our securities fraud attorneys immediately.
Through a FINRA arbitration claim, securities litigation, or another type of legal action, you may be entitled to significant financial compensation.
Examples of Recoveries We’ve Secured for Investors
$11.1 Million → Verdict against Smith Barney broker who sold away in violation of FINRA rules
The firm obtained a verdict of over $11.1 million, which included all the principal losses plus ordered the bank to indemnify the claimants for a $10 million state court judgment entered against them, for investors who sustained losses in a failed real estate development recommended by their Smith Barney broker who sold away in violation of FINRA rules and industry rules.
Brokers are prohibited from recommending investments that are not approved by their brokerage firms, an illicit practice called “selling away”. The recovery represents 100% of the investors’ losses. The award is notable in that the arbitrators made Smith Barney liable for the amount the investors owed Wachovia Bank under a $10 million dollar final judgment against the investors who were guarantors of a loan made in connection with the failed development. Click here to view the award.
$4.5 MILLION → Recovery for negligence and negligent supervision
Banco National de Mexico S.A., Institution de Banca Multiple, Fiduciary Division, as Trustee of the Trust Agreement Numbered 15437-5 v. Morgan Stanley & Co., Inc. Case No. 12-01019: The firm represented Banco National de Mexico, S.A. (“Banamex”) as trustee of a trust which is beneficially owned by a Mexican family against Morgan Stanley and recovered $4,500,000. The FINRA arbitration panel made a finding of negligence and negligent supervision. The claim was based on Banamex’s allegation that Morgan Stanley caused a cross pledge to be recorded on its accounts with Bank Morgan Stanley, a Morgan Stanley affiliate, without its authorization.
The cross pledge amounted to a guaranty on loans made by Bank Morgan Stanley to a third party. When the third party’s investments declined significantly in 2008-2009, Bank Morgan Stanley seized approximately $5,200,00 from the Banamex accounts based on an unauthorized cross pledge. The award is significant in that it is a very large FINRA arbitration award and represents the recovery of nearly all of the funds taken from Banamex. The trial lasted eight days and was defended the Greenberg Traurig law firm which represented Morgan Stanley. Click here to view the award.
$1.1 MILLION → Verdict against Morgan Keegan for securities fraud
Cobb vs. Morgan Keegan & Co. (FINRA). The Firm obtained a $1.1 million dollar verdict against Morgan Keegan, in a case alleging securities fraud over the sale of Morgan Keegan closed-end and open-end mutual funds, known as RMK Mult-Sector High Income Fund (RHY), RMK Advantage Income Fund (RMA), RMK Select High Income (MKHIX), RMK High Income Fund (RMH), RMK Strategic Income Fund (RSF). The verdict and subsequent recovered amounted to 80% of the investor’s net losses. Click here to view the award.
Investment Fraud Questions Answered by Attorney Jeffrey Sonn
What Should Investors Do If They Believe They are a Victim of Investment Abuse?
WATCH: What Should Investors Do If They Believe They Are a Victim of Investment Abuse?
Answer: Investors should seek help from an experienced securities lawyer like myself because, simply stated, they have nobody else to turn to who’s objective. If you go to your financial advisor, they’re going to tell you, “It’s okay, your investment will come back; hold on; markets go up and down; you’re going to be alright in the long-term.”
But what they will not tell you is whether the investment from day one was even suitable for you or not. What an experienced securities attorney will do is look at your investment, look at it in the context of your portfolio, look at in the context of your financial needs and circumstances and tell you whether or not they think it was appropriate for you.
Often after consulting with other experts in the industry, they will tell you that given these facts, given who this investor is, and given these products or this portfolio, whether the investment or the investment portfolio was suitable for the client in the first place. Simply stated, it’s the only place you can get an objective, honest viewpoint.
I think by and large most financial advisors are honest people who want to help their clients, but sometimes they make mistakes, and when they do, it’s very difficult for them to admit to it. That’s why you need an experienced investment lawyer.
Why Don’t More Investors Sue Their Broker/Advisor for Losses?
WATCH: Why Don’t More Investors Sue Their Broker/Advisor for Losses?
Answer: I think one of the biggest misconceptions about the ability to recover investment losses is that most investors just don’t know about arbitration. They don’t even know they can do anything about it. Here’s a typical scenario:
An investor spends decades saving money, working hard, playing by the rules. And they trust their financial advisor because they’ve built this relationship over years. And frankly, the financial advisor is the expert, so when they lose money and the advisor tells them that nothing went wrong or the brokerage firm sends them a letter saying, “We’ve investigated your claim, but we don’t feel anything went wrong,” it usually stops right there.
Investors just generally don’t know that they can do anything, and that’s simply wrong. There is a way to recover your money. Arbitration and experienced securities lawyers are there to help you to recover your losses.
What Tactics do Advisors Use to Discourage Investors from Filing Complaints?
WATCH: What Tactics Do Advisors Use to Discourage Investors from Filing Complaints?
Answer: I think by and large most investors truly trust their advisors, that they’ve built a relationship over the years, and when they start losing money on an investment, they ask they’re advisor, “What’s going on?” And the typical response is, “Oh, it’s temporary; it’s just the market; the market goes down; the market goes up; it’ll come back; don’t worry.”
So they trust their advisor and they don’t think anything about it, and they hold on. But in reality, the advisor doesn’t have anybody else to turn to to ask that question. Most general, family attorneys or the attorney they generally might go to simply don’t know this area of law, so they can’t counsel the client that arbitration is available to them to recover their losses, and I think that’s why most investors don’t act.
What Legal Duties do Financial Advisors Owe Their Customers?
WATCH: What Legal Duties Do Financial Advisors Owe Their Customers?
Answer: Most financial advisors are covered by the suitability rule, and other investment advisors are covered by the fiduciary duty rule. Under the suitability rule, most financial advisors, which we used to call stockbrokers, have a duty to make recommendations that are reasonably suitable for the investor based upon their age, their tolerance for risk, their time horizon to retirement, their investment objectives (like they need income or they’re looking for growth) and any other factors that might make the investment recommendation suitable for the investor.
Now, that standard is lower than what I call the fiduciary duty. The fiduciary duty of a financial advisor is in common law in many states that says that the financial advisor must act in the best interest of the customer. So, the main difference between the fiduciary duty rule and the suitability rule is that when you’re acting in the best interest of the customer under the fiduciary duty rule, you can’t sell the customer products where you or your firm have a conflict of interest.
But under the suitability rule, as long as the investment is suitable, the firm might have an undisclosed conflict of interest, and that’s simply wrong. I think today, with the fiduciary duty rule being proposed, but being delayed by the Trump Administration, a lot of investors are being harmed because they think that their advisor is mandated to act in their best interest at all times, but until that becomes a permanent rule, many investors simply don’t know there’s a lower standard of care under the suitability rule.
The Most Common Types of Investment Fraud
Investment fraud comes in a wide range of different forms. If you have been the victim of fraud or negligence, it is imperative that you seek guidance from an investment fraud attorney who can review the specific circumstances of your individual case.
According to data from the Financial Industry Regulatory Authority (FINRA), some of the most common types of investment fraud are as follows:
- Breach of Fiduciary Duty: Registered investment advisors (RIAs) have fiduciary obligations to their clients. A fiduciary duty requires a professional to act in the best interests of their client. Notably, brokers have no such duty. If your RIA breached their fiduciary duty, you should contact an investment fraud attorney immediately.
- Unsuitable Investment Recommendations: While stockbrokers may not have a fiduciary duty, they are subject to FINRA’s suitability rules. Brokers must ensure that they are recommending investments and investment strategies that are appropriate for the unique needs, circumstances, and objectives of their customer. If you sustained losses due to unsuitable investment advice, you may be entitled to compensation.
- Material Misrepresentations or Omissions: Financial professionals must refrain from making material misrepresentations, including misrepresentations by omission. All information that is material to an investment should be disclosed.
- Failure to Adequately Supervise: Brokerage firms are responsible for the actions or inactions of their individual representatives. A brokerage firm that does not conduct adequate oversight may be held legally liable through a failure to supervise
- Selling Away: Selling away occurs when a financial advisor offers securities that are not approved or overseen by their member firm. This type of misconduct can put investors at considerable risk. If you sustained losses due to a broker selling away, you should speak to an experienced investment fraud attorney.
- Unauthorized Trading: Sadly, in some cases, brokers and financial advisors engage in unauthorized trading. You should not be held financially responsible for losses sustained in trades or transactions that you never approved of in the first place.
- Churning (Excessive Trading): Churning occurs when a broker makes an inappropriate amount of trades on a customer’s account. Excessive trading can result in huge losses for an investor, all while the broker receives illegitimate commissions and fees.
- Lack of Diversification: Your financial advisor should ensure that your investment holdings are appropriate for your individual circumstances. This includes making sure that your eggs are not all in one basket. If you lost money due to a lack of diversification in your portfolio, it is strongly recommended that you consult with a skilled securities fraud attorney.
- Elder Financial Abuse: Elder financial fraud is a growing problem in the United States. This specific type of fraud can occur in many different ways. Sadly, unscrupulous financial advisors, companies, and scammers will often target vulnerable elderly people as part of their fraud schemes.
- Ponzi Schemes: A Ponzi scheme is a complex form of investment fraud where money is simply shuffled around from new investors to the original investors. Innocent people are lured in with false promises, but ultimately every Ponzi scheme comes crashing down.
Common Types of Securities Involved in Fraud/Negligence Claims
Any type of security or financial product may be used to defraud an investor. Though, there are certainly some factors that make investments more risky. In general, financial products or investment opportunities should be considered especially risky if they are complex, illiquid, opaque, speculative, or offered outside the bounds of a registered brokerage firm.
Still, any type of investment could be used for fraudulent purposes in the wrong hands. The Financial Industry Regulatory Authority (FINRA) reports that some of the most common securities at issue in customer claims include:
- Common stock or mutual funds;
- Exchange traded funds (ETFs);
- Leveraged and inverse ETFs;
- Municipal bonds, such as Puerto Rican bonds;
- Real Estate Investment Trusts (REITs);
- Variable annuities and other structured financial products; and
- Promissory notes and other debt-based products;
How Our Investment Fraud Attorneys Can Help You
If you suffered serious investment losses, you should consult with an investment fraud attorney immediately. The legal options available to you will depend on many different factors.
Your securities fraud attorney must conduct a comprehensive investigation into your individual case. Some of the key issues that your investment fraud lawyer will review include:
- The financial documents and records that you have in your possession;
- Your relationship with your financial advisor or brokerage firm;
- The promises that were made to you and your family; and
- The total losses you sustained due to the possible fraud/negligence.
With full information in hand, your attorney will be able to determine exactly what actions you need to take to make the most effective claim for full and fair financial compensation for your illegitimate investment losses.
Schedule a Free Consultation With an Investment Fraud Lawyer Today
At Sonn Law Group, our securities fraud attorneys have served investors throughout the United States and North America for nearly three decades. If you or your loved one sustained large investment losses due to suspected fraud or negligence, we are here to assist you.
To get a free, no risk review of your investment fraud case, please contact our legal team immediately. We handle FINRA arbitration claims and securities litigation cases on contingency — that means there are never any out-of-pocket costs for our clients. We only get paid if you get paid.
Learn Your Rights
If you’ve suffered significant losses in your investment accounts, talk to a lawyer who will explain your rights and options, free of charge.