Stockbrokers and investment advisers have legal obligations to treat clients fairly. This includes the duty to act in a customer’s best interests and not put their own interests before those of the customers.
Unfortunately, some brokers and advisers violate these duties by engaging in negligent or fraudulent conduct that costs their clients considerable sums in investment losses. If you or someone you care about lost money because of a broker, adviser, or brokerage firm’s failure to act in your best interests, you may have grounds to pursue a recovery through FINRA arbitration.
At Malecki Law, our New York investment loss recovery attorneys have recovered tens of millions of dollars in investment losses for clients across the U.S. and the world. Led by Attorney Jenice Malecki, a respected authority in the field, have leverage decades of unique experience from both sides of the fence to get results for investors.
Investment professionals (often called brokers, financial advisors and/or investment advisors) and broker-dealers are licensed and registered with the state and with FINRA and/or the SEC, like doctors or lawyers are licensed with boards and bars. Disclosure and investor protection and two of the main mandates along with stability of the markets, in the Securities Exchange Act of 1933, the Securities Act of 1934, the Investment Advisor Act of 1940, Regulation Best Interest and FINRA’s Conduct Rules.
Since the thrust of all the laws is disclosure and investor protection, imbedded in that disclosure requirement is not only that they give you complete and accurate information, but to make sure that you understand it. You should not need to be a New York City securities attorney to understand something in which you are investing. If you do not understand an investment, you should not be in it, and it should not have been recommended to you under the rules.
These days, securities products (like structured proprietary products created by the broker-dealer, Leveraged ETFs, Notes, CMOs/CDOs, REITS, Variable Annuities, and the like) have become increasingly complicated. Brokers themselves often do not understand the product, which is a real problem for investors and show a failure of supervision and training at the firm. Firms these days are notorious for creating complex products and withholding information from brokers who they pressure to sell to retail investors. Brokerage firms, whether operating as a large office or through a broker’s independent branch office, are legally responsible both for the brokers’ conduct, as well as its own conduct in failing to supervise, monitor and educate the broker as if everything a broker sold and everything a broker does needed approval (which in fact it does).
If you have a dispute with a broker or brokerage firm, you will be required to go to arbitration in most cases, a forum Malecki Law’s New York investment loss recovery attorneys regularly appears in for investors.
Here are some of the types of claims investors have brought to recover their investment losses:
- Common Law Fraud (Scams) & Misrepresentations and Omissions under Federal Securities Laws
- Unsuitability and Regulation Best Interest
- Affinity Fraud
- Elder Fraud
- Ponzi Schemes
- Churning / Overtrading
- Unauthorized Trading
- New Products, Defective Securities Products and Structured Products
- Sales Practice Violations
- Breach of Fiduciary Duty
- Private Placements, “Hedge Funds,” Limited Partnership Issues & Other Non-Conventional Investments
- Margin Violations
- Failures to Execute
- Failure to Supervise
- Breach of Contract
- Conversion and Theft
- Market Manipulation
- Variable Annuities
You need to ask: why are you buying the investment at this time, in this market, and why it is recommended at this stage in your life? The same investment is not right for everyone, and every investment is not right in every market period. When someone recommends an investment to you, they need to look at all these factors.
The problem with the brokerage industry is that brokers are commissioned salespeople, like car salespeople. Their work is often, unfortunately, judged by how much revenue they bring the firm, not how successful a client’s portfolio is. Sometimes those concepts are in line and correlated; sometimes, they are not, and investments are recommended because of the high commission they generate.
Having successfully represented small to high-net-worth investors in cases against some of the industry's largest brokerage firms, our investment loss recovery lawyers in New York provide free consultations and representation for investors to determine whether they have been victimized. Malecki Law's investment fraud attorneys have helped numerous investors recover tens of millions of dollars in losses and stand ready to represent you in lawsuits and arbitrations involving broker misconduct, fraud, negligence, and more.
Our New York investment fraud attorneys have experience in many forums, which we use to ensure the most advantageous and appropriate jurisdiction is being utilized for your case. Such forums include:
- United States Securities and Exchange Commission ("SEC")
- United States Commodities Futures Trading Commission
- Financial Industry Regulatory Authority ("FINRA")
- New York Stock Exchange ("NYSE")
- American Stock Exchange ("AMEX")
- National Futures Association ("NFA")
- Municipal Securities Rulemaking Board ("MSRB")
- Certified Financial Planners Board of Standards ("CFP Board")
- Various State Attorney General Offices
- Arbitration Forums such as the American Arbitration Association (AAA) and FINRA
- Mediation Forums such as JAMS Endispute
- Federal Court
- State Court
Attorney Jenice Malecki and our team take decisive measures to help wronged investors explore their options, viable claims, and avenues for pursuing a financial recovery. If you wish to discuss your matter with a New York securities attorney lawyer from our firm, call or contact us online. We offer FREE and confidential consultations and serve clients across the U.S. and beyond.
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:1. Common Law Fraud (Scams) & Misrepresentations and Omissions under Federal Securities Laws
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.
2. Unsuitability and Regulation Best Interest
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.Unsuitable Investment Examples
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.
Causes of Action: Part 2
In today’s tumultuous markets, we can really see that overconcentration in one sector (like technology) can be big mistake – and your investment professional should know better, and your brokerage firm or Registered Investment Advisor Firm should also be supervising both your investment professional and your account. Diversification is key. The New York investment unsuitability lawyers at Malecki Law know that be it overconcentration, churning, elder fraud, Ponzi schemes or unauthorized trading, your broker should have known better than to put you in those cross-hairs.
Failing to diversify your investments over different asset classes (type of security, i.e., stock, bond, mutual funds, cash, etc.) and sectors (health care, financials, automotive, pharmaceuticals, consumer goods, technology, international, etc.), as well as "overconcentration" in any one of those areas, or even in a single stock, may be the reason for your losses and an actionable claim against your broker and his firm for allowing this to happen.
- SEC Beginner's Guide to Asset Allocation, Diversification, and Rebalancing (Revised: August 2009)
- Overconcentration in Retired Couple’s Account
4. Elder, Affinity, and Minority Fraud and Ponzi Schemes
Dealing with senior citizens and those approaching retirement requires special care and planning. Many seniors are not up to date on the latest market trends, products, and strategies, as well as generally have special needs when it comes to liquidity, income, and safety. Preying om the needs of seniors and vulnerabilities, scurrilous professionals often try to market more speculative income-producing products to at or in retirement investors, which have income features, but also greater hidden risk (and bigger commissions). If you find yourself having experienced greater than expected losses and you are in or approaching retirement, that special care and planning may have been missing and Malecki Law’s New York investment unsuitability lawyers will carefully review your documents and information to determine what claims best fit your circumstances.
Affinity fraud is defined as fraud specifically committed against members of a unified group. Examples include schemes that target the elderly (often within the same community), religious institutions, persons of a particular ethnicity, or professional organizations. Fraud is often committed by one who indoctrinates into the group in question, by convincing community leaders and other members that he or she is a friend and that a crooked investment is legitimate. Many affinity scams involve “Ponzi” or pyramid schemes, wherein new investor money is paid to prior investors, to falsely make the investment appear profitable. In actuality, much or all of the money is stolen by the schemer(s).
- FINRA Key Topic: Senior Investors
- Ponzi Schemes
- Minority Fraud
- Industry Obligations Relating to Senior Investors
- Variable Annuities Sold to Elderly Investors
- Sales of Bond Funds
- SEC Investor Alert – Affinity Fraud: Hot to Avoid Investment Scams That Target Groups
- Investor.gov – Affinity Fraud
- Investor.gov – Ponzi Scheme “Red Flags”
Investment unsuitability law firm in New York, Malecki Law, knows first hand, having represented hundreds of Ponzi victims, that Ponzi schemes aren’t suitable for anyone – they are a fraud that the broker and brokerage firm should have caught and stopped.
5. Churning / Overtrading
Churning refers to the excessive account trading for the broker’s own commissions and/or profit, while exercising control over your money. Control is exercised in situations when an investor is unable to evaluate recommendations and a judgment is made by the broker on the investor’s behalf, whether or not it was discussed with the investor. Overtrading is essentially the same as churning but refers to excessive trading that is not in line with the customers’ need and objectives.
6. Unauthorized Trading
A broker’s trading of your account without asking your permission. Even if a security was discussed between you and your broker in a general sense, a customer must give permission for the specific security, in the specific amount and on the specific day the order is placed (which must be contemporaneous with that discussion, not at a different time in the day because markets can move and firms must provide customers’ with the “best execution,” a term of art and rule in the industry).
When you have a brokerage account, you have the right to be well informed about your investments and investment unsuitability attorneys in New York at Malecki Law will hold your brokerage firm or registered investment advisor accountable for taking that control away from you and not following what was in your best interest.
Causes of Action: Part 3
A big issue for investors in today’s markets are the complex and opaque products that the industry creates that often are confusing and too difficult for your average investor to understand, and sometimes even a sophisticated investor. In fact, at times the brokers/investment advisors don’t even understand them. The New York defective securities investment lawyers at Malecki Law have experience handling these types of cases.
While these can be seen product liability cases, in a sense, they often involve sales practice violations. That means that your investment professional did not tell you everything you needed to know for advised you to do things that they knew were not right for you, such as employing margin. This is not only a violation of Regulation Best Interest discussed separately on this site, but can be a breach of fiduciary duty in the right circumstances. The New York defective securities investment lawyers can navigate these difficult waters for you.
Malecki Law has experience navigating clients’ ways out of illiquid investment, like private placements, as well. Experience matters. Jenice Malecki has over 30 years experience in this area.
7. Mutual Funds, Bonds & Municipal Securities, New Products, Defective Securities Products and Structured Products
Some securities products (such as CDOs, CMOs, and MBSs) should never have been sold to most investors. We deal with product failure issues in mutual funds, municipal securities, preferred securities, notes bonds, annuities, hedge funds, private placements, REITs, the aforementioned CDOs, CMOs, MBSs, and other structured products. Leveraged ETFs are for day traders and should not be held overnight.
Even when buying a well-known mutual fund or municipal bond, it must be sold properly, with full disclosure and considering a bonds features and expiration, or a mutual funds breakpoints, sales charges, and the like. Our defective securities investment law firm in New York is ready to handle these cases for you.
- FINRA Key Topic: Municipal Securities
- FINRA Key Topic: Fixed Income
- FINRA Key Topic: Breakpoints
- FINRA Key Topic: Advertising Regulation
- Advertising New Products
- Reverse Convertibles: Complex Investment Vehicles
- Volatility-Linked Exchange Traded Products
- Overconcentration of Structured Products in Retired Couple’s account
8. Sales Practice Violations
Sales practice violations occur when brokers engage in fraudulent sales practices, such as high-pressure sales tactics and misrepresentations or omissions regarding the investments or even the broker’s purported interactions with company executives. High pressure sales tactics are just what they sound like: Pressure to “get in now before it is too late,” “a once in a lifetime opportunity,” constant calling and befriending. A broker is a business relationship, not a friend. If it sounds too good to be true, it probably is not true.
- Acts and Conduct Rules on Communication with Prospects and Customers
- Mutual Fund Sales
- Sales of Bond Funds
- Frequently Asked Questions (FAQ) about Private Placements
- Non-Conventional Investments
- SEC - Hedging Your Bets: A Heads Up on Hedge Funds and Funds of Hedge Funds
9. Breach of Fiduciary Duty
When the broker does not use the high degree of care in overseeing your investment portfolio, such as recommending junk bonds as safe, or an annuity in an IRA (Individual Retirement Account). A fiduciary has a duty of loyalty to a customer and must act in the client’s best interest, putting the client’s interest ahead of his or her own interest.
10. Private Placements, “Hedge Funds”, Limited Partnership Issues & Other Non-Conventional Investments
These are Investments (often unsuitable and illiquid) that a broker has recommended into private companies not traded on an exchange. If the broker does so without disclosing the true nature of the unregistered, illiquid investment, or recommended despite failing to conduct proper “due diligence” on them before investing, you very well may have a case against the broker for money damages. Private placements are discrete rounds of investments offered privately, not publicly, to selected private investors and are usually suitable for high net worth and sophisticated accredited investors. Malecki Law’s defective securities investment attorneys in New York are available to give you a free consultation.
- FINRA Key Topic: Private Placements
- Non-Conventional Investments
- SEC - Hedging Your Bets: A Heads Up on Hedge Funds and Funds of Hedge Funds
- Hedge Funds, Private Equity & Investment Advisors
11. Margin Violations
A broker’s failure to properly disclose the risks of margin trading and terms of margin loans, such as that a brokerage firm can sell out any securities in the portfolio at their discretion if your account equity (its value) dips below the minimum equity requirements of the firm for each of the stocks. Certain stocks have low equity requirements, others have high equity requirements, and some stock is not marginable. When a firm sells, it is called a “margin call” and it usually happens at the worst time in the market (or even the worst time of the day you are sold out). This means you will likely lose a lot of money. You can actually lose more than you gave your broker to invest, and you could wind up owing the brokerage firm money. However, if your broker recommended that you use margin, but did not fully inform you as to how it all worked, you may have an action against the broker and brokerage firm.
- FINRA Key Topic: Margin
- NASD (now FINRA) Notice to Members Requiring Delivery of Margin Disclosure Statements to Non-Institutional Members
- NASD Notice to Members 02-17: Option Contracts: Alerting Customers to Adjustments to Option Contracts (March 2002)
- NASD Notice to Members on Margin Requirements (August 21, 2000)
12. Failures to Execute
A broker not following a customer's direct purchase and/or sale instructions in a proper manner.
Causes of Action: Part 4
Most Cases at FINRA arbitration involve failure to supervise. Malecki Law’s New York FINRA arbitration lawyers know that everything a broker or investment advisor has done, should have been scrupulously supervised by likely numerous people. Both your account, as well as the investment professional and transactions themselves, have different lines of supervision for different purposes. From forgeries, theft and conversion to suitability, from market manipulation to breach of contract and annuity peddling, a supervisor should have been closely monitoring and put a stop to the wrongful conduct.
13. Failures to Supervise
When the brokerage firm's senior personnel fail to properly review and monitor the brokers' work.
14. Breach of Contract
A brokerage firm’s failure to live up to written and/or verbal agreements regarding the handling of your account, which includes FINRA and SEC rules and laws.
A broker’s wrongful signature of your name without your permission, copying and pasting your signature or altering documents you already signed.
Any experienced New York FINRA arbitration lawyers like those at Malecki Law will tell you, a motto is “there’s a forgery in every case.” That may be a slight exaggeration, but you would be surprised how often we see them.
16. Conversion and Theft
A broker wrongfully taking control of your money, and/or transferring it to an account outside your control.
- Uniform Application for Broker-Dealer Registration Outlining Rules Against Wrongful Conversion of Funds
These days, theft has become more prevalent rather than less. Not only do you have to worry that your computer may be hacked, or your bank account, but your brokerage firm assets as well. Malecki Law’s FINRA arbitration law firm in New York has successfully resolved numerous large cases involving theft and conversion.
17. Market Manipulation
The creation of a fictitious market environment by brokers, traders, and/or analysts to suit only their own profit objectives. “Pump and dump schemes” (otherwise known as “hype and dump manipulation”) refers to the steering of investor toward a stock (typically microcap companies, defined as companies with a market capitalization of $300 million or less) through false or misleading statements. With the stock’s value overstated, the committer of this fraud then sells the stock for large profits. The promotion of such schemes is common to the Internet and telemarketing, often perpetuated by paid promoters looking to gain from false hype. Once the stock is entirely sold off (or “dumped”) by the promoter, its worth plummets at the investor’s peril.
Depending on the claim and the state or forum where it is brought, there may be different statutes of limitations or time limits that a customer has to bring a claim, even in arbitration. If you suspect broker wrongdoing has contributed to investment losses, you should promptly contact Malecki Law’s FINRA arbitration attorneys in New York to protect your rights.
More Information on Statute Specifics from the North American Securities Administrators Association
18. Variable Annuities
The sale of variable annuities is fraught with issues for investors, from high sales charges, penalties for early withdrawal to choices in underlying investments and lifetime insurance benefits. Sales of variable annuities are regulated by both the SEC and FINRA. Many issues can arise around questionable sales practices fueled by high pay-outs for brokers. FINRA Rule 2330 provides guidance and a standard from which to judge whether a broker or advisor has breached their obligations to you for which you might have a negligence, contractual and/or fraud case.
Investors who lose money because of unsuitable investments may have grounds to hold the responsible broker and brokerage firm accountable through investor arbitration or mediation, which are types of dispute resolution processes that function as alternatives to litigation.
Depending on the circumstances, investors may allege unsuitability, misrepresentation, and / or other fraud and misconduct claims against a broker. They may also look to hold the representative’s brokerage firm accountable for failures to supervise and other breaches of conduct.