Elements of Abuse by David Disraeli

David Disraeli has advised clients who have a legitimate claim to hire an attorney to seek damages who eventually collected, in the majority of cases.  In addition, David Disraeli has been hired by numerous attorneys to help in case preparation and testifying at arbitration.  The key question is do you have a case?

There are a number of factors that go into the determination of whether you have a securities fraud case, or a case of abuse.  Just because you lost money DOES not mean you have a case.  The salesperson/broker/agent must have breach his or her duty in one of several ways.  Most element fit into one of three categories:

  1. Know your client rule.  FINRA, the primary organization who supervises the brokerage industry under the authority provided to them by the SEC has promulgated specific requirements that all brokers and their supervisors must follow.  A short list is includes (click here for more detail)
  • age
  • other investments;
  • financial situation and needs, which might include questions about annual income and liquid net worth;
  • tax status, such as marginal tax rate;
  • investment objectives, which might include generating income, funding retirement, buying a home, preserving wealth or market speculation;
  • investment experience;
  • investment time horizon, such as the expected time available to achieve a particular financial goal;
  • liquidity needs, which is the customer’s need to convert investments to cash without incurring significant loss in value; and
  • risk tolerance, which is a customer’s willingness to risk losing some or all of the original investment in exchange for greater potential returns.

In a nutshell options trading may be completely fine for a portion of a 30 year old surgeon’s account but not for an 80 year old.  Of course this is an exaggerated example.  However the main point is that failure to conduct enough due diligence to determine that a particular investment is appropriate in a given situation is a non-negotiable on the part of the broker.  He/she must explain the risks and tax implications, how it fits into the entire strategy, and most importantly whether the clients specific circumstances warrant the recommendation.  Otherwise, the broker is exposed, especially if the investment loses money.

2.  Excessive trading or churning.   Some accounts are going to see more buying and selling simply due to the nature of the account.  In some cases an argument could be made that the broker made trades for his own benefit – commissions.  This is always viewed on a case by case basis.  An expert like David Disraeli would look at the number of trades, whether the client requested most of them, or the broker suggested them, whether they were profitable and compare that to industry norms for the same type of client.  Cases can be brought to recover the commission or losses or both.  Here is a case of a 77 year old blind widow.  

3.  Fraud –  Investment fraud has several elements but they all revolve around two elements: 1.  Providing false or misleading information to clients and 2.  Withholding material information, which, if known would have caused the client to refrain from making the investment.  This is not only a case for recovery but could result in severe disciplinary action.

 


David Disraeli
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