Stockbroker fraud, which is also known as investment fraud, occurs when a stockbroker sells investment products based upon inaccurate, incomplete or biased information. Sometimes this occurs because the stockbroker is seeking to enrich himself and not acting in the interests of the investor. Other times it occurs because of stockbroker negligence or incompetence.
All stockbrokers and other investment professionals have a legal duty to exercise due care in dealing with the clients they serve. The nature and extent of the duty is based upon state and federal securities laws, on the self-regulatory rules adopted by the Financial Industry Regulatory Authority (FINRA) and the New York Stock Exchange (NYSE), and upon the level of competence customarily maintained by stockbrokers in general. When a broker harms a customer by failing to meet that standard of care, the customer may decide to make a claim against the broker for professional negligence and stock fraud.
Examples of stock fraud practices include:
- Misrepresentation/Omission: Stock fraud involving misrepresentation or omission occurs when risk factors associated with a particular stock, mutual fund, or other investment are not fully disclosed to the customer.
- Unsuitability: Stock fraud unsuitability occurs when a broker pushes stocks on an investor that are not appropriate to that investor’s risk tolerance, often resulting in substantial loss for the client.
- Over-concentration: Stock fraud through over-concentration involves the absence of diversification in investments; thereby losing the protection that comes with investing in multiple areas.
- Churning: Stock fraud through churning involves the broker making a large number of transactions made to generate commissions for the broker, and little profit for the customer
Broker stock fraud can also involve:
- Unauthorized trades
- Failure to place an order
- High pressure sales methods
The central component of stock fraud is that the investor’s interests are placed secondary to the financial gain of the broker. Stock fraud can destroy the finances of individuals and businesses, and in turn can cause substantial damage to the stock market itself. The Securities Exchange Commission has established guidelines for stockbrokers and advisors to follow to ensure that investment advice is being given fairly and consistently, and that stockbrokers are not engaging in stock fraud.
If you suspect that you have been a victim of stock fraud, contact Kootenai County attorney James Bendell for a free consultation regarding your situation. James is a Coeur d’Alene lawyer with three decades of trial experience, and is a former prosecutor who will aggressively represent your interests if you are a victim of stockbroker fraud. If you or someone you love is in need of a fraud attorney in North Idaho, call James Bendell at 208-665-4600 or send a quick response email for a free initial consultation on your case.