Investor Claims - Part 1

Although Investors have lost one sum of money, there are usually a number of causes of action to choose from – and they can all be stated together in one Statement of Claim (complaint). In the US, you are allowed to plead in the alternative, or bring more than one cause of action in one case for the same damages.

Malecki Law’s team of New York securities fraud lawyers will provide legal advice and representation as a plaintiff or claimant in a multiplicity of claims ranging from routine suitability cases to complex disputes involving intricacies in federal securities laws and sophisticated options trading.

The riskiest products carry the highest commissions, but they are not products right for everyone. Often, problem products are pushed out to market at a higher commission at exactly the wrong time to buy the product – call it a clearance rack. These the investments are really for speculators, sophisticated investors, with ultra-high net worth, who may know better and would actually never touch these investments. New York securities fraud lawyers at Malecki Law know that this leads to important areas where customers and their brokers and broker/dealers are in conflict with one another, and a legal claim may arise: 

Frauds (lying and deceit), swindles and scams represent violations of specific rules created by state and federal government bodies to protect investors and the markets. Often these concerns involve specific lies a broker has told you or omissions of key facts by a broker making the balance of the information you have received untrue. Often that takes place involving purported or expected initial public offerings, known as IPOs. It is important not to be mislead or dazzled by such promises or so invest if you are not ready for speculation. Public offerings require great scrutiny and must be transparent and truthful.

• FINRA Key Topic: Protecting Investors from Misconduct
• FINRA Key Topic: Public Offerings

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Unsuitability is a broker’s recommendation of investments not appropriate for your age, income, and/or objectives. Brokers and advisors are required to act in your best interest and disclose any conflicts of interest. For more information explicitly defining the legal definition of unsuitability, consult our securities fraud attorneys in New York and we will explain the following FINRA rules and regulations:

• FINRA Key Topic: Suitability
• FINRA Key Topic: SEC Regulation Best Interest
• FINRA Key Topic: Conflicts of Interest
• Suitability: Rule 2111
• Regulation Best Interest
• Securities Fraud and Unsuitable Investments

Registered brokers and advisers are required to uphold certain standards when working with investor clients. This includes two important standards contained in FINRA Rule 2111 (Suitability) and FINRA Rule 2090 (Know Your Customer).

• FINRA Rule 2111(a). FINRA’s suitability standard requires broker-advisers to have a reasonable basis to believe the transactions or investment strategies they recommend are suitable for the customer based on information they have obtained through reasonable diligence.
• FINRA Rule 2090. FINRA’s “Know Your Customer” (KYC) rule generally requires broker-advisers to make suitable recommendation based on facts about the customers.

The Suitability and KYC standards protect investors by ensuring that brokers make recommendations in their clients’ best interests rather than their own. Under these rules, brokers should make reasonable efforts to base the recommendations they make on factors such as the customer’s:

• Current financial status
• Tax situation
• Investment knowledge
• Short- and long-term investment goals
• Risk tolerance

In addition to learning about customers and their financial goals, brokers should also adequately investigate potential investments to ensure they are appropriate for the customer and regularly monitor and evaluate the investment and the customer’s needs as their situation evolves.

Despite these and other important standards of conduct, such as Regulation Best Interest, some broker-advisers still make unsuitable recommendations that come with major consequences for clients. Often, it is the result of negligence, self-interest, and the prospect of large commissions.

Broker-advisers that fail to make appropriate recommendations can cause tremendous harm to investors. This can include exposing investors to excessive risk, illiquidity, costly fees that erode total return, and significant losses / loss of principal.

While every case is unique, some examples of unsuitable investments may include:

• Recommendations to invest in private placements such as non-traded REITs.
• Employing an overly risky investment strategy for a retired, elderly client.
• Failing to adequately research an investment product.
• Misrepresenting an investment product to personally profit.
• Unsuitable options trading strategies for a client looking to preserve capital.
• Advising a client to inappropriately concentrate investments at the expense of diversification.

Malecki Law’s securities fraud law firm in New York can guide you from the drafting of your statement of claim (complaint) through a hearing, always available for a free consultation.