What if my Stockbroker Did Not Disclose the Risks of Investing in a Security?
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As reported in InvestmentNews, three Raymond James entities have agreed to pay over $15 million to resolve an investigation by the SEC. The settlement and SEC order focused on Raymond James’s actions in improperly charging certain clients advisory fees when the...read more
If a financial advisor or stockbroker misleads an investor into thinking that a particular security, such as a stock or bond, is less financially risky than it actually is, the investor is likely to sustain devastating financial losses. This is a form of securities fraud known as “omission,” and is prohibited by federal law. If your investment advisor or stockbroker failed to disclose the risks of investing in a stock, bond, or other types of securities, and you or your small business suffered financial harm as a result, you may be able to recover your losses and obtain compensation by filing a claim with the Financial Industry Regulatory Authority (FINRA), which may allow you to enter a dispute resolution process known as “arbitration.” Read on for an explanation of what constitutes omission, and how an omission attorney can help you fight for compensation by utilizing the FINRA arbitration process.
Omission and Unsuitable Investment Recommendations
Some investments carry a greater level of financial risk than others. Examples of high-risk investments typically include:
- High-Yield Bonds
- Initial Public Offerings (IPOs)
- Leveraged Oil Exchange-Traded Funds (ETFs)
By comparison, the following are generally categorized as low-risk investments:
- Dividend-Paying Stocks
- Municipal Bonds
- Treasury Inflation-Protected Securities (TIPS)
- U.S. Treasury Notes and Bonds
Low-risk investments are often attractive to, and appropriate for, investors who have limited resources and/or investing experience. Indeed, investment experience and risk tolerance are both crucial elements of each investor’s “investor profile,” which also looks at variables like age, ability to liquidate assets, and prior investments made by the investor.
Stockbrokers and financial advisors must make recommendations that are appropriate to the investor’s investor profile. Failure to do so is called recommending an “unsuitable investment.” For example, if a stockbroker’s client is young, inexperienced, and has limited financial resources, the advisor is making an unsuitable recommendation by recommending that the client invest in high-risk securities.
Omission is a separate but related issue that sometimes overlaps with unsuitable recommendations. Omission occurs when a stockbroker or investment advisor intentionally withholds “material,” or significant, information about the level of financial risk associated with an investment deal. For example, the broker might withhold information about investment fees, withhold information about potential pitfalls and drawbacks associated with an investment, or falsely tell a client that a failing company or project is in good financial health.
What to Do if Your Stockbroker Concealed Information About an Investment
When a stockbroker or financial advisor fails to communicate the level of financial risk in a clear, honest, and accurate fashion, the investor is likely to sustain financial losses for which he or she was completely unprepared. Though no investor ever wants to find themselves in this position, the good news is that it may be possible to recover losses sustained through an unsuitable recommendation and/or omission of material facts. The Financial Industry Regulatory Authority, commonly referred to as “FINRA,” provides a platform for resolving disputes between investors and financial professionals. By bringing the dispute before FINRA for review, the investor gains an invaluable opportunity to recover compensation.
There are several ways to resolve a dispute through FINRA, including mediation and arbitration. Both methods are faster, simpler, less formal, and less costly than litigation. To begin either process, the investor must file a FINRA claim. A FINRA arbitration attorney can make sure that (1) you have grounds for bringing a claim before FINRA, (2) your claim is properly drafted, and (3) your claim is filed in a timely manner.
Once your claim has been processed, an arbitrator – or panel of three arbitrators, depending on the size of your claim – will be assigned to your case. Similar to the process prior to a trial, both sides will go through prehearing conferences and “discovery,” which is the process of exchanging information relevant to the claim.
Ultimately, you will attend an in-person hearing, after which the arbitrator or arbitrators will render a written, legally-binding decision called an “award.” If you can prove that your stockbroker or financial advisor omitted facts about your investment, or made unsuitable recommendations against your investor profile, thereby causing you to sustain financial losses, the arbitrator or arbitrators may award you “damages” or financial compensation.
FINRA Arbitration Lawyers for Victims of Securities Fraud
There is nothing inherently unlawful about recommending a high-risk investment. Indeed, such investments can yield substantial returns. However, it is essential that the investor is given a clear understanding of the level of risk involved. Failure to do so constitutes a violation of the investor’s rights – and of the laws governing the financial sector.
If you lost money because your investment advisor, stockbroker, or brokerage firm failed to disclose information about an investment, the FINRA law firm of Epperson & Greenidge, LLP may be able to help you get reimbursed. For a free legal consultation concerning omissions, unsuitable recommendations, or other forms of investment fraud, contact Epperson & Greenidge online, or call our law offices at (877) 445-9261.