Securities
Litigation
WPL is
especially pleased with its success in handling litigation
and arbitration dealing with the interpretation and enforcement
of state and federal securities laws. Actions against stockbrokers,
brokerage firms, and salespersons for fraudulent and improper
solicitation of investments of little or no value, or not
in accordance with the goals and financial resources of the
customer, have become more numerous in recent years, and WPL
has been at the forefront of this growing field. Although
as in all legal matters not all cases fit in simple categories
generally cases consist of one of the following:
Misrepresentation/Fraud:
Sometimes brokers provide their customers with false information
about a stock that the customer relies upon in making the
decision to purchase or sell the stock. The misinformation
provided by the broker can be an actual misstatement or may
be the mere failure to tell a customer about pertinent information
that would affect the buy sell decision. The broker may not
know that he is providing false information and can still
be held liable, when the broker should have known that the
information provided to the customer was inaccurate or false.
Trading
without permission: Sometimes a customer may be surprised
to discover certain trades made in his account which had not
been previously discussed by the stockbroker. This constitutes
unauthorized trading, which is prohibited. Sometimes a broker
may call the customer after the fact and say that he has just
placed a particular trade in the account. The mere fact that
the broker informed the customer of the trade afterwards does
not make that manner of trading acceptable. However, if the
customer indicates his acceptance of the trade that may be
viewed as ratification of the broker's act.
"Guaranteed
sure winner.": Another common complaint is that the stockbroker
promised that the stock would go up and that the investment
was a "guaranteed sure winner." Most experienced investors
realize that there are no guarantees in the stock market and
that brokers may be prone to a certain degree of exaggeration
or puffery in their salesmanship. However, although there
is no black and white line, when a stockbroker's overly aggressive
sales tactics go too far and the customer relied upon his
representations, then such statements may constitute unlawful
misrepresentations.
Excessive
trading: If a broker is constantly buying and selling
in the account, this may be evidence of churning, which means
engaging in excessive trading in order to generate commissions
for the broker. Such activity constitutes another form of
securities fraud. Even if the broker is constantly calling
the customer prior to placing the trades, this activity is
still improper where the broker is abusing the account for
his own selfish purposes.
Insider
information: Sometimes a broker may say that he has information
from certain sources inside the company which is not available
to the public. A broker may indicate that he is certain that
the stock will be going up based upon such information and
urge the customer to invest on what he may describe as a "hot
tip." This may constitute trading on "insider information",
which is prohibited by law. The line between permissible tips,
research department analysis, and insider information may
not be clear in all cases.
Negligence:
Occasionally it may seem that a particular broker just does
not know what he is doing. This may be in terms of executing
trades, following instructions, or general performance of
the portfolio. Brokers are held to certain standards of the
securities industry and must pass various examinations in
order to be licensed. Failure to maintain a certain level
of competence in the management of an account may constitute
negligence or a form of broker malpractice.
Risky
investments and misrepresentations: Sometimes a customer
will complain that the broker said that something was a very
safe investment but the customer later discovered that in
fact it was very risky. Customers rely upon the recommendations
of stockbrokers, and failure to properly disclose the risk
is a misrepresentation or material omission. Unfortunately,
many investors do not discover the truth in such cases until
after they have incurred substantial losses and then realize
that the investment was not so safe in the first place.
Margin
problems: Many complaints arise from problems which occur
when a portfolio is on margin, i.e. trading with money borrowed
from the brokerage firm. A customer may complain that the
broker put the account on margin without his prior authorization.
More frequently however, the problem is not that the account
was put on margin without any prior authorization, but rather
that the broker put the account on margin without explaining
the risks and problems associated with margin trading. Since
a margin account involves trading with borrowed funds, there
are special risks associated with margin that must be explained
to a customer at the outset. When a customer receives "margin
calls" which he does not understand or is shocked to discover
that positions in his account are being liquidated due to
margin maintenance requirements, it may reflect the fact that
he never understood margin properly from the outset, and therefore
he did not knowingly consent to the use of margin in his account.
Limited
partnerships: A common complaint with limited partnership
investments relates to the value of the investment. Frequently
such investments are not listed on any public exchange and
are intended as long-term investments. Some brokers may continue
to reassure customers each year as to the value of such limited
partnership investments, but after many years the customer
suddenly discovers that the investment is worthless or has
declined greatly in value. This situation raises complex problems
of statutes of limitations and eligibility relating to the
timeliness with which securities claims must be filed. In
general, one should act quickly upon discovering a problem
before the clock runs out and before any legal action may
be barred.
In addition
to filing lawsuits on behalf of clients in these matters,
we also represent clients in arbitration proceedings before
the American Arbitration Association and the National Association
of Securities Dealers. Our goal is to help our clients to
recoup losses associated with their ill-advised investments.
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