Types of Securities Fraud

The four most common types of securities fraud committed by stockbrokers and invesetment advisors are:

  • Churning
  • Unsuitability
  • Overconcentration
  • Misrepresentation/Nondisclosure
Churning

Churning an account means engaging in excessive transactions for the purpose of generating commissions for the broker. The broker engages in these transactions for his own benefit rather than the benefit of the client. Often he will sell the winners to show a profit in the short-term, while keeping losers, which hurts long-term performance. To establish that your account has been churned, we have to demonstrate that the trading activity in your account was excessive. We have several methods of doing this, including calculating the annualized rate of return that would be necessary to cover the commissions charged in your account; the number of times the equity in your account is turned over to purchase securities; and the overall pattern of purchase and sale trading activity on your account. If your broker seems to be buying and selling securities in your account to an excessive degree, and he always has a reason why you should take quick profits, there is a strong possibility that your account is being churned.

If you think your broker may have churned your account, contact us for a free case evaluation.

Unsuitability

Unsuitability refers to a broker making investment recommendations to a client that are not appropriate for that particular client. Brokers have a duty to make investment recommendations that are consistent with their client's risk tolerance, needs and investment objectives. An investment may be unsuitable if a client does not have the financial ability to incur the risk associated with a particular investment, or if the investment does not match up with the investor's financial needs; or if the client did not know or understand the risks associated with the investment. A broker has a duty to understand and take into consideration the risk tolerance of an investor, relevant tax considerations, the client's prior experiences and appetite for risk, and the level of return desired. It is the duty of a broker to make recommendations that are appropriate and suitable given his client's circumstances. If a broker breaches that duty and makes recommendations that are unsuitable for a client, the broker may be liable to that client.

If you think your broker may have put your money in unsuitable investments, contact us for a free case evaluation.

Overconcentration

Overconcentration occurs when a broker puts too much of your portfolio in an individual investment (such as the stock of a particular company) or type of investment (such as pharmaceutical stocks). Diversification is one of the most important rules of investing. If a broker concentrates your portfolio in any individual investment or type of investment, then your exposure to risk of losses is significantly increased. A broker who does not diversify his client's portfolio is potentially liable if that portfolio declines in value.

If you think your broker overconcentrated your portfolio, contact us for a free case evaluation.

Misrepresentation/Nondisclosure

Misrepresentation occurs when a broker provides false or misleading information to a client regarding an investment. Nondisclosure occurs when a broker fails to disclose information about an investment that he is required, by law or regulation, to disclose to a client. Often misrepresentations and nondisclosure conceal the risk associated with a particular investment. A broker has a duty to fairly disclose all of the risks associated with an investment. A broker may be liable to a client if he misrepresents material facts or omits to disclose material facts to the investor regarding an investment, and that client loses money as a result.

If you believe your broker misrepresented or failed to disclose important facts about your investments, contact us for a free case evaluation.

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