The Guerrero Law Firm - A Professional Corproration

Personal Injury, Product Liability
and Wrongful Death Law

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Stock Fraud

What is Stock Fraud?

Stock fraud occurs when a broker or other investment professional violates the trust you have placed in him and as a result, violates the rules which govern their profession.

In order to prevail on your claim, you must be able to prove that you have suffered an economic loss as the result of misconduct by your stockbroker, investment advisor or financial planner. You must also prove that you behaved reasonably under the circumstances.

How Does Stock Fraud Occur?

Most investors who are injured by stock fraud have claims which result from the following types of misconduct. Remember that this is a limited list, and there are many means in which an investor could be defrauded other than what is listed below. Should you have questions about whether you may have been defrauded, please call us to discuss your situation.

Misrepresentation or Omission of Important Facts

This can involve providing misinformation or omitting pertinent facts regarding your financial decisions. For example, a broker might claim that he knows the future price of a stock, that his firm controls the stock’s price, or that he has inside information regarding a company’s stock.

Excessive, Unnecessary Trading

This is often referred to as churning, and occurs when a broker, who has explicit authority or practical control over an investor’s account, engages in excessive trading to generate larger commissions.

Trading Without Authorization

A broker may fail to consult the client before making trades in a non-discretionary account or ignore specific instructions by the client regarding a discretionary account.

Failure to Follow Investor’s Instructions

Failure to adhere to an investor’s directions can result in large losses. An investment professional is obligated to initiate transactions as their clients direct.

Misappropriation of the Investor’s Funds

Misuse of an investor’s funds is often accompanied by the broker’s failure to report the transaction to his employer. Regardless of the firm’s knowledge of its employees’ activities, the company is responsible for the misappropriation of the investor’s money.

Unsuitable Investments

This occurs when a broker or financial planner recommends inappropriate investments – in light of the client’s economic circumstances or financial objectives. For example: an unsuitable investment occurs when a financial planner recommends that his client (a retiree needing regular income) placed all of her money into high- risk stocks or mutual funds, depriving her of the regular income she needs to survive.

What is Arbitration?

Most brokerage agreements contain an arbitration clause, which requires the investor and the brokerage firm to settle any disputes through the arbitration process rather than through litigation in the court system. Arbitration is less formal than a normal lawsuit; it usually occurs in a conference room with one to three lawyers acting as the decision makers, or arbitrators. Most arbitration proceedings are handled by one of the major arbitration providers such as, the American Arbitration Association for Mediation, the National Association of Securities Dealers, or the New York Stock Exchange.

How Does Arbitration Work?

An arbitration hearing is typically held approximately twelve to eighteen months after the claim is filed. Before the hearing, the parties or their lawyers often submit briefs containing their factual and legal arguments. After any pre-hearing motions are decided, the parties or their representatives make opening statements, and the claimant puts forth his case much like he would in court, calling witnesses, testifying, and offering exhibits. As in a trial, all parties have the right to cross-examine each other’s witnesses, and, the arbitrators may ask their own questions. Again the process is less formal than, but similar in nature to, a trial. Please contact us for assistance in these matters if you feel that you have been subject to fraudulent financial management.