Excessive Use of Portfolio Margin During Coronavirus (COVID-19) Pandemic

Investor Recoveries

$ 0
Million Recovery
$ 0
Million Recovery
$ 0
Million Recovery
$ 0
Million Recovery
$ 0
Million Recovery
$ 0
Million Recovery
$ 0
Million Recovery

Investor Recoveries

$ 0
Million
$ 0
Million
$ 0
Million
$ 0
Million
$ 0
Million

Investor Recoveries

$ 0
Million
$ 0
Million
$ 0
Million

Excessive Use of Portfolio Margin During Coronavirus
(COVID-19) Pandemic

According to securities industry rules and regulations, brokerage firms and financial advisors must make full disclosure of all risks related to the use of margin with an investment portfolio, in light of market conditions including the spread of the Coronavirus (COVID-19).  The level of margin abuse in a portfolio requires an assessment of risks that are a function of the various factors including, costs ratios, increased volatility, assets to meet margin calls, and the intended use of the borrowed funds.

Margin abuse can result in excessive use of margin loans or the failure to utilize risk management strategies to protect account collateral. Margin calls can wipe out an investor’s brokerage account equity in a short period of time. The use of margin exposes investors to greater risk and costs. Margin interest increases the breakeven rate of return required for a particular investment strategy. A higher required rate of return may result in a change to a riskier investment strategy that is unsuitable for the investor. This greater return and its corresponding risk are many times not disclosed to investors. This fact must be weighed carefully and disclosed by a brokerage firm and its financial advisor.

Why Would Investors have a Claim to Recover Investment Losses from Excessive Use of Portfolio Margin during Coronavirus (COVID-19) Pandemic?

Many brokerage firms provide financial incentives to financial advisors who recommend the use of margin because the lending activities represent a substantial source of revenues for the firm. The margin loans are fully collateralized with no chance of default because of the protections provided to the brokerage firms in the margin agreements. For these profits, financial incentives are given to financial advisors whose clients’ accounts have margin loans. These incentives include greater commissions because it increases the amount of assets the financial advisor can manage. 

Nonetheless, in the pursuit of profits, brokerage firms and its financial advisors are required securities industry rules and regulations to make full disclosure of all relevant costs and risks associated with the use of portfolio margin.  Failure to fully disclose these risks supports a claim for damages for losses incurred during the Coronavirus (COVID-19) Pandemic. The required  disclosures include, that;

  • they can lose more money than their initial investment;
  • they may have to deposit additional cash or securities in their account to meet margin calls;
  • they may be forced to sell some or all of the security positions in the brokerage account to meet margin calls; and
  • brokerage firms may sell any security positions without consulting you to meet margin calls.
What Factors Are Considered in a Claim for Damages from the Excessive Use of Portfolio Margin to Recover Investment Losses sustained during the Coronavirus Pandemic?

Margin abuse can result in excessive use of margin loans or the failure to utilize risk management strategies to protect account collateral. Margin calls can wipe out an investor’s brokerage account equity in a short period of time. The use of margin exposes investors to greater risk and costs. Margin interest increases the breakeven rate of return required for a particular investment strategy. A brokerage account cost ratio measures breakeven rate of return for the account to cover all costs, including commissions and margin interest. When margin is used, the required net rate of return needed to breakeven increases to pay interest charges. The higher required rate of return may result in a change to a riskier investment strategy that is unsuitable for the investor. This greater return and its corresponding risk are many times not disclosed to investors. This fact must be weighed carefully and disclosed by a brokerage firm and its financial advisor. Some brokerage firms and financial advisors recommend the use of margin to diversify. The use of margin or other loans in many situations is considered unsuitable investment advice.

Klayman Toskes Can Help Recover Investment Losses

Klayman Toskes has been dedicated to the protection of investor rights for decades, from the Tech Bubble in 2000 to the Mortgage Crisis in 2008, we can help you recover investment losses during the Coronavirus (COVID-19) pandemic.  Klayman Toskes is investigating whether the excessive use of portfolio margin resulted in investment losses suffered during the Coronavirus (COVID-19) pandemic.  The following type of case facts can support a claim for damages:

  • use of margin to fund personal consumption;
  • cumulative interest costs increased over time;
  • purchase of securities on margin;
  • insufficient assets to meet margin calls;
  • excessive margin balance resulted in margin calls; and
  • forced sale of securities during market declines.

Download Special Investor Report:

Contact Us to Recover Losses
Sustained in COVID-19 Pandemic