Investment Fraud Lawyers
Contact our investment fraud lawyers at KlaymanToskes today at (888) 997-9956. If you have investment losses due to the actions of your broker or financial advisor, we can help you recover your losses. We offer free confidential consultations. There is no obligations.
The national investment fraud lawyers at KlaymanToskes represent the interests of investors who have experienced losses due to securities or investment fraud, negligence, or other wrongful acts.
Our securities attorneys have helped investors recover over $600 million* in compensation for damages suffered as a result of financial advisor misconduct, broker negligence, unsuitable investment advice, and/or other securities violations.
If you are an investor who has experienced losses due to fraud or other investment misconduct, contact KlaymanToskes for a free, no obligation account review. Our experienced attorneys can help you determine if your losses are eligible for recovery.
Signs Investors Should Look Out For That May Indicate Investment Fraud
As an investor, there are a few signs that you should look out for if you believe you may have a claim against your financial advisor or broker. Investors are encouraged to contact our firm immediately if you have experienced any of the following:
- You have substantial losses in your investment accounts
- You noticed unauthorized transactions in your investment accounts
- Your broker misrepresented investment opportunities, or failed to disclose details about investments
- Your broker is not returning your calls or emails
- You filed a complaint with your brokerage firm that has not been resolved
Over the years, it’s natural to forge a strong bond with your broker or financial advisor, thanks to the time and trust invested in your journey towards building financial wealth.
As such, it can place you in an uncomfortable position when you discover that your trusted advisor may have not been working in your best interests. Unfortunately, it’s not uncommon for financial advisors to put their own personal profits over the needs of their clients’ portfolios.
You placed your trust in someone else to handle your investments. When that trust is violated, you can find yourself in a difficult situation. If you’ve suffered losses due to investment fraud, our securities lawyers are here to help.
If you believe you have suffered losses due to investment fraud, don’t wait. You can contact our office by either calling (888) 997-9956 or by submitting a form on our website.
Have You Suffered Investment Losses?
Contact the investment fraud lawyers at KlaymanToskes today at (888) 997-9956. We’ll listen to your story and provide you a free, no obligation account review.
Our case reviews are always 100% confidential. We value your privacy.
The Most Common Forms of Investment Fraud
Investment fraud comes in many different forms. Regardless of the form, all forms of investment fraud involve an advisor or broker perpetrating fraud in order to benefit personally or financially.
Investment fraud is unfortunately common, and recovery is possible through a FINRA arbitration claim.
From Q1 to Q2 in 2023, the Federal Trade Commission (or the FTC) has reported nearly 50,000 individual cases of investor fraud with an estimated $1.9 Billion in total losses.
Here are some of the most common types of investment fraud:
Unsuitable Investments refer to investment recommendations made by financial advisors or brokerage firms that do not align with an investor’s specific needs, investment goals, risk tolerance, and/or investment time horizon. According to the “suitability” rule established by FINRA (Financial Industry Regulatory Authority), financial advisors must conduct reasonable due diligence and gather essential information about each customer to provide suitable investment advice.
The suitability rule takes into account various factors, including the customer’s age, employment status, tax status, financial situation, investment objectives, experience, time horizon, liquidity needs, risk tolerance, and any other relevant information disclosed by the customer. This rule applies to all types of investment advice, whether it involves buying, selling, or holding securities or investment strategies.
A recommendation is not solely based on a transaction or generating compensation for the advisor; it considers the individual customer’s circumstances and requirements. Failure to supervise an advisor’s understanding of an investment or a client’s needs could lead to negligence claims or violations of FINRA’s sales practice rules and regulations.
Excessive Trading (Churning)
Excessive Trading or Churning refers to the practice of a financial advisor or brokerage firm excessively trading a customer’s brokerage account to benefit themselves through high commissions and fees, violating securities industry regulations set by FINRA. In such cases, investors can allege breach of fiduciary duty and conflicts of interest when investment strategies are recommended solely to enrich the firm or advisor. To prove excessive trading in a FINRA arbitration claim, customers must show that the advisor controlled or solicited the account activity and that it was disproportionate to their risk tolerance and investment goals.
Arbitration panels consider various factors, such as the client’s sophistication, suitability of the investment strategy, past transaction patterns, client trust, research efforts, ratio of solicited to unsolicited transactions, and the client’s understanding of the strategy. Statistical measures like the turnover ratio and cost-equity ratio are also used to gauge excessive trading. The turnover ratio assesses the activity level based on total annual purchases divided by the average account balance, while the cost-equity ratio measures annual costs relative to the average balance, providing insights into the strategy’s viability.
Different levels of churning may serve as evidence of the advisor’s control over the account. The arbitrator may assess whether the investment returns can realistically cover the costs incurred due to the recommended strategy, considering the breakeven rate of return and the investor’s ability to comprehend the associated risks.
Misrepresentation and Omission of Material Facts
Misrepresentation & Omission of Material Facts involves the violation of sales practices regulations, as per FINRA (Financial Industry Regulatory Authority). This includes fraudulent misrepresentations or omissions of material facts related to investment recommendations, which can be intentional or due to negligence.
The SEC (Securities Exchange Commission) outlines that fraud claims under Section 10(b)(5) of the Securities Exchange Act of 1934 may involve deception, misrepresentation, non-disclosure, or omission of material facts concerning the purchase or sale of securities. Investors can seek damages if the investment recommendations were based on misrepresentation or omission of material facts, were intentional or reckless, and resulted in investment losses.
Investors rely on accurate information from financial advisors to make suitable investment decisions, especially in non-discretionary accounts where investors must approve all transactions. Misrepresentation or omission of material facts can occur in various scenarios, such as inadequate due diligence on security offerings, failure to disclose material risks or costs related to investments, unrealistically optimistic investment projections, and inaccurate performance calculations.
Breach of Fiduciary Duty
Breach of Fiduciary Duty is a critical concern in the relationship between customers and brokerage firms. Clients often rely on financial advisors’ expertise and suitable investment advice, whether in non-discretionary brokerage accounts or fee-based investment advisory accounts. However, there is often confusion about the roles played by brokerage firms and registered investment advisors, leading customers to trust and rely heavily on their financial advisors’ recommendations.
Given the complexity of financial products and clients’ limited time and market knowledge, financial advisors are expected to avoid conflicts of interest when providing investment advice. If a customer relies on a financial advisor’s representation that their best interests are taken into account, this reliance is considered reasonable. Customers place a significant degree of trust and control in their financial advisors, establishing a fiduciary relationship.
A recommendation becomes more significant when it is personalized and tailored to a specific customer. Therefore, failure to disclose all relevant information concerning an investment recommendation may indicate a conflict of interest and breach of fiduciary duty on the part of the financial advisor. Investment losses resulting from such breaches can be pursued through a FINRA arbitration claim for damages.
Unauthorized Trading is a sales practice violation, as per FINRA (Financial Industry Regulatory Authority), and refers to purchasing or selling securities in a non-discretionary customer account without obtaining prior authorization from the customer. This violation does not apply to accounts where the financial advisor has received written discretionary authority from the customer to execute transactions. In defense of unauthorized trading claims, brokerage firms may argue that verbal discretion was granted by the customer regarding price and time or that the customer ratified the transaction by not disputing it promptly.
When financial advisors have received written “discretionary” authorization, they must not misuse or exceed that authority by engaging in excessive trading, churning, or recommending unsuitable investment strategies. Excessive transactions could be deemed a breach of fiduciary duty and a FINRA sales practice violation, exposing the brokerage firm and its financial advisor to liability for unauthorized trading or other misconduct.
In an unauthorized trading claim, a FINRA arbitration panel considers various factors, including whether unauthorized transactions occurred, whether the financial advisor obtained permission before executing the trades, details about the price and time given for trading, the absence of Good ‘Til Canceled (GTC) orders in the account, the volume of trading, similar trades in outside brokerage accounts, and the net gain or loss for all trades in the security at issue.
To support a FINRA arbitration claim for damages due to unauthorized trading, a thorough review of the timeline surrounding the transactions is essential. Analyzing trade confirmations in relation to prior and subsequent communications between the customer and the financial advisor can help substantiate the allegations. Making a formal complaint with the branch office of the financial advisor immediately after receiving trade confirmations is recommended to avoid implying ratification of the disputed transactions.
Mutual Fund Sales Violations
Mutual Fund Sales Violations have been a common source of FINRA arbitration claims, as per the Financial Industry Regulatory Authority. Financial advisors are obligated to recommend the most suitable mutual fund share class for their customers, prioritizing their best interests over commissions resulting from conflicts of interest. Different mutual fund share classes can include load funds with sales commissions, no-load funds without sales commissions, or back-end load funds with contingent sales commissions based on the holding period. Additionally, various operating expenses and management fees further complicate the decision-making process, making it essential for FINRA sales practice rules to safeguard investors.
Mutual funds are intended as long-term investments, aligning with a client’s entire investment time horizon. In some cases, transactions between mutual funds or different fund families may be suitable if part of a genuine asset allocation investment plan. However, care must be taken to avoid unintended taxes in taxable investment accounts resulting from mutual fund sales and purchases.
Mutual fund switching among funds with similar investment objectives can be a FINRA sales practice violation if lacking a legitimate investment purpose, leading to unnecessary sales commissions and increased tax liability for the customer. Sales breakpoint violations occur when brokerage firms fail to supervise financial advisors who recommend mutual fund purchases just below the breakpoint, resulting in higher sales commission charges, benefiting the firm and advisor at the client’s expense.
FINRA’s sales practice rules for mutual funds encompass areas like:
Variable Annuity Switching
Variable Annuity Switching is a concerning practice, especially among seniors and retirement planners, as noted by state insurance and securities regulators. According to FINRA, financial brokerage firms and advisors must conduct a reasonable inquiry into a client’s situation before recommending the purchase or exchange of a variable annuity to ensure suitability. Factors such as age, income, financial situation, investment objectives, and tax status must be considered.
Replacing variable annuity contracts should be carefully evaluated, taking into account surrender charges, changes in costs, contract benefits, and potential conflicts of interest due to higher compensation for advisors recommending such transactions. Some advisors recommend a significant portion of investors’ financial assets in variable annuities, driven partly by the high commissions involved. However, variable annuities might not always be suitable for retirement accounts due to their complexity and added costs, leading some to conclude that they are unsuitable.
Bonus variable annuity contracts, designed to offset surrender charges from replacing existing annuities, require thorough assessment and disclosure of all relevant facts. Unsuitable subaccount asset allocation for replacement variable annuities can hold financial advisors and brokerage firms responsible for losses resulting from improper investment allocations.
Excessive Markups/Markdowns in securities transactions have become a concern, prompting the Financial Industry Regulatory Authority (FINRA) to propose rule changes. The existing “5% Markup” rule, established decades ago, no longer aligns with today’s securities markets, which have evolved with advancements in technology. The proposed guidelines aim to offer clarity on costs and fees charged to investors for executing transactions.
Current market prices are considered efficient, reflecting all relevant information, resulting in fairly priced securities. However, the prices paid by investors for securities transactions may vary due to differences in fees and costs charged by financial brokerage firms and advisors. The new FINRA guidelines outline factors to determine fair and reasonable pricing, including the type of security, its availability, price, transaction amount, disclosure, markup patterns, and the nature of the firm’s business.
Markup and markdown percentages can differ based on the type of security and associated costs. Securities such as low-priced stocks, inactive securities, OTCBB stocks, municipal bonds, and trades by smaller financial brokerage firms often incur higher costs. The “5% Markup” rule does not apply to securities sold through a prospectus, offering circular, or initial public offering. Financial advisor dealer transactions affected by the markup rule guidelines include riskless or simultaneous transactions, orders filled from inventory (principal transactions), and agency transactions.
Selling Away refers to financial advisors engaging in private securities transactions with the investing public that involve securities not approved by their brokerage firms, and where there is an expectation of receiving selling compensation. Brokerage firms typically market and sell registered securities, but in some cases, financial advisors may sell non-registered securities through private placement memoranda to accredited investors. However, advisors can only sell investments that are approved by the brokerage firm holding their securities licenses.
Securities licensed financial advisors are required to disclose any “outside business activities” from which they expect to be compensated. Brokerage firms must monitor and uncover any unapproved outside business activities, including those related to private securities transactions. Many brokerage firms audit their financial advisors’ personal and business bank accounts to detect any undisclosed activities. Selling away can lead to investment losses in various private securities transactions, such as promissory notes, unregistered securities, real estate investments, oil and gas partnerships, and more.
Private securities transactions may be presented by advisors as unique opportunities, creating a sense of urgency to invest. Advisors engaging in selling away may have conflicts of interest and could use fraudulent misrepresentations or omissions to promote these investments. Brokerage firms have a responsibility to supervise their financial advisors, and many terminate advisors involved in selling away due to potential liability.
Broker & Advisor Negligence
Negligence on the part of brokerage firms and their financial advisors occurs when they fail to adhere to industry standards for handling customer accounts, resulting in investment losses for the customers. Brokerage firms often tout their financial expertise through various media channels, leading investors to trust in their capabilities. As such, brokerage firms have a responsibility to maintain and monitor investment accounts with a reasonable and prudent standard of care.
Negligence claims can arise from various situations, including unsuitable recommendations, failure to manage concentrated stock positions, inadequate due diligence, overlooking tax implications in account rollovers, and failure to monitor accounts for changes in customer circumstances and market conditions. Negligent acts do not necessarily require intentionality; a simple omission or failure to act can lead to a viable securities arbitration claim for damages.
Brokerage firms and financial advisors cannot claim ignorance of industry standards; they are expected to have knowledge of economic and financial matters relevant to their clients’ investments. To establish liability for negligence, it is sufficient for a reasonable and prudent person to have foreseen the potential consequences of the act and taken reasonable steps to prevent them.
Failure to Supervise
Failure to Supervise is a critical issue for brokerage firms as they must oversee all activities of their financial advisors in compliance with industry standards. Adequate supervision serves as the first line of defense to protect investors and ensure adherence to FINRA rules and regulations. Branch office managers play a pivotal role in this process, overseeing hiring, training, communications with customers, recommendations, and client transactions.
To effectively monitor financial advisors, brokerage firms utilize computerized systems and exception reports to identify specific activities in customer accounts that require closer examination. This may include significant declines in account equity, excessive trading, high margin usage, and concentrated securities holdings. Branch managers may also communicate directly with customers to confirm their understanding of investment strategies and risks.
Margin Abuse exposes investors to significant risks and costs, often resulting from excessive use of margin loans or the failure to implement risk management strategies. Margin loans can lead to devastating margin calls, erasing an investor’s account equity in a short time. The increased breakeven rate of return due to margin interest can push investors towards riskier strategies, undisclosed to them, making it unsuitable for their risk tolerance.
Brokerage firms may incentivize financial advisors to recommend margin use due to the substantial profits it generates for the firm. However, this creates conflicts of interest and potential supervision failures. Margin accounts are risky and should be reserved for sophisticated investors who understand the substantial potential loss. Investors must be aware of the risks, including the possibility of additional cash or securities deposits to meet margin calls, forced security sales, and lack of consultation by the brokerage firm.
While some advisors may highlight the tax-deductibility of margin interest, this advice must be carefully examined as various factors impact its tax-deductibility. Compliance manuals often prohibit financial advisors from providing tax advice, yet some still do when suggesting margin use and its supposed tax deductibility.
Over Concentration of an Account (Failure to Diversify)
Over Concentration (Failure to Diversify), or having a significant portion of an investment portfolio in a single security or investment product, poses substantial risks and is discouraged by financial management principles. Diversification is considered optimal for most investors to mitigate catastrophic losses. Industry standards of care emphasize the need to avoid excessive concentration in any one asset, asset class, or investment product, with a guideline that any portion exceeding 10% of the portfolio’s value constitutes concentration.
Brokerage firms and financial advisors are required by FINRA to disclose the risks associated with specific investments and consider the overall portfolio composition when making recommendations. Failure to recommend strategies to manage the risks of securities concentration can be viewed as financial advisor negligence. Concentrated portfolios may arise due to various reasons such as inherited stock, employee stock option plans, or financial advisor recommendations. Regardless of the reason, brokerage firms must recommend suitable risk management strategies for concentrated positions to protect investors’ interests.
Investors holding concentrated positions without appropriate risk management recommendations may be entitled to recover their losses through a FINRA arbitration claim. In some cases, financial advisors may suggest complex hedging strategies to reduce risk, but the brokerage firm’s failure to supervise the implementation may lead to negligence claims.
Conflicts of Interest
Conflicts of Interest are a critical concern in the financial industry, requiring financial advisors and brokerage firms to identify and disclose any potential conflicts to their clients. The Financial Industry Regulatory Authority (FINRA) mandates this disclosure as a mechanism for investor protection. Financial firms have an obligation to fully disclose conflicts of interest, enabling investors to comprehend the costs and risks associated with any investment product or strategy.
These conflicts may arise from various sources, such as revenue sharing arrangements, compensation structures, or favoring proprietary products. Brokerage firms must exercise due diligence and independent review of financial products, especially when they have partnering arrangements with third parties. Financial advisors should prioritize their clients’ interests and recommend suitable investment options without any conflict.
To address this concern, FINRA has emphasized the importance of full disclosure as a tool to reduce the impact of conflicts of interest on investors. Proper disclosure allows securities regulators to protect the investing public effectively. Brokerage firms must disclose material information based on the nature of their relationship with each client, as mandated by laws, rules, and regulations.
Private Placements, governed by Regulation D under the Securities Act of 1933, involve non-registered securities that are not publicly traded. These investments are typically sold through Private Placement Memorandums (“PPMs”) rather than SEC prospectuses, providing limited information for investors to evaluate. Brokerage firms are entrusted with the responsibility of promoting and recommending private placements, leaving investors heavily reliant on their representations. Due to the risks and challenges involved, smaller brokerage firms often handle private placements worth under $50 million, exposing investors to additional business risks.
Accredited investors, defined by the SEC with specific financial standards, are the primary target for private placements. However, brokerage firms must still assess suitability for accredited investors by considering their personal financial situations, sources of income, tax status, and portfolio holdings. Suitability determinations require a reasonable investigation into the investment merits of the private placement, and brokerage firms have a duty to conduct independent due diligence reviews. This includes assessing the issuer and its management, business prospects, assets, claims, and the intended use of proceeds.
Brokerage firms cannot passively rely on information provided by the private placement issuer and must ensure the credibility of the PPM through further investigation. The qualifications and expertise of parties involved in preparing the PPM must be evaluated, along with the completeness of the analysis. Any deficiencies or conflicts of interest must be addressed before making representations to investors about the private placement.
401(k) Plans Misconduct
401(k) Plans Misconduct refers to actions taken by financial advisors managing employer-sponsored retirement plans, such as 401(k)s, that violate their fiduciary duties and harm plan participants. These fiduciaries have a legal obligation to act in the best interest of the plan and its participants, including making prudent investment decisions, avoiding conflicts of interest, and ensuring reasonable fees. When financial advisors fail to meet these responsibilities, it can lead to investment losses and other damages for employees relying on these plans for their financial future.
Under the Employee Retirement Income Security Act of 1974 (ERISA), fiduciaries of 401(k) plans are held to high standards of conduct. They must act with skill, diligence, and prudence, diversify plan investments, and act solely in the interest of the plan participants. Failure to meet these obligations can result in legal liability for financial advisors, and employees have the right to pursue arbitration to seek remedies for any losses caused by such misconduct.
If you are a victim of any of the above-mentioned forms of investment fraud, you may be entitled to seek remedies for your losses.
The investment fraud lawyers at KlaymanToskes can help you determine whether a broker or financial advisor has violated their duty to you and whether you may be able to recover your losses. Our experienced securities attorneys have successfully represented hundreds of clients in FINRA arbitration proceedings, recovering over $600 million in damages.
You can learn more about our firm here and schedule a free case evaluation to discuss your potential claim today. Contact us at 888-997-9956 for more information. We look forward to helping you protect your rights and obtain the compensation you deserve!
How Can an Investment Fraud Lawyer Help You Recover Your Investment Losses?
An investment fraud lawyer can help evaluate your case, identify any violations of the securities laws that may have occurred, and work to recover damages for your losses. Recovery of investment losses is typically done through the FINRA arbitration process, which is an alternative dispute resolution method for securities-related claims.
Unlike typical litigation, FINRA arbitration is a streamlined and efficient legal process designed to resolve disputes between investors and brokers.
All registered brokers and financial advisors are members of FINRA, and must agree to submit any disputes with their customers to FINRA arbitration. This gives investors an important means of pursuing legal action if they have been wronged by their broker or advisor.
As per FINRA’s recommendations, all investors who are considering filing a FINRA arbitration claim against their broker should seek legal counsel.
It is in your best interests to obtain advice from qualified investment fraud lawyers who understand the complexities of securities law and have a track record of successfully resolving FINRA arbitration cases.
At KlaymanToskes, our experienced securities attorneys possess the knowledge and the experience you need and can trust to represent your interests in FINRA arbitration.
We’ve helped investors recover over $600 million in compensation for damages suffered as a result of financial advisor misconduct, broker negligence, unsuitable investment advice, and/or other securities violations.
When you hire KlaymanToskes, you can rest assured knowing that your case is in the hands of experienced and knowledgeable investment fraud lawyers who will fight to protect your rights and get you the justice you deserve.
Contact us today by either calling our office at 888-997-9956 or by filling out the contact form on our website.
You Don’t Need an Investment Fraud Lawyer “Near Me”
Unlike many other types of legal cases, you don’t need to hire an investment fraud lawyer “near me” to represent you in FINRA arbitration.
Securities arbitration claims are typically not regulated by state laws, so it doesn’t matter where your lawyer is located. This comes to great benefit for investors, as it means that you can hire the very best investment fraud lawyer for your case regardless of their location.
If you believe you are a victim of any form of investment fraud, the staff at KlaymanToskes can help.
We represent investors nationwide in FINRA arbitration proceedings and have offices in California, New York, Florida, and Puerto Rico. Please call our office at 888-997-9956 or fill out a contact form online for a free, no-obligation consultation.
Our experienced securities attorneys have a proven track record of success in recovering damages for investors who have lost money due to broker or financial advisor misconduct. Let us help you seek the compensation you and your family deserve.
Schedule a Free, No-Obligation Case Evaluation with Our Investment Fraud Lawyers Today
You’ve spent a long time building trust with your financial advisor and your broker, and we understand that placing your trust in someone else after feeling betrayed by them can be intimidating.
At KlaymanToskes, we are committed to helping investors and building a relationship of trust with our clients. We take the time to get to know you and your case, so that we can provide you with the most effective legal representation possible.
We won’t push you into a situation that you’re not comfortable with, and we’ll never move forward until you feel confident in your decision.
Chances are, if you find yourself with significant investment losses due to your broker or advisor, there may be other individuals that have been working with the same professional who may not yet be aware of the losses they may have incurred due to the broker’s misconduct.
Your actions could help protect other unsuspecting investors from potential financial losses.
Contact us today at 888-997-9956 for a free, no-obligation consultation with our experienced investment fraud lawyers. We will review your case and determine if you have grounds to seek recovery of any losses caused by financial advisor misconduct or broker negligence.
We look forward to speaking with you.