Featured Investigation: August 2018

If you hire a broker or investment firm to help you manage your finances and accounts, you are essentially placing your trust and confidence in the individual or firm. Although there are many different laws that are designed to make financial advisers accountable, far too many brokers and brokerage firms bend the rules or let things slip through the cracks—and the investors are the people who pay the direct price. The Financial Industry Regulatory Authority is tasked with enforcing the federal regulations that keep the securities market fair and equitable. Los Angeles securities lawyer Steve A. Buchwalter reviews the enforcement actions and decisions that FINRA publishes to stay on top of current trends in the brokerage world and to provide our investor clients with knowledgeable and dedicated legal counsel. If you believe that your broker or brokerage firm failed to provide you with the appropriate advice or account management, contact us today to start learning about your potential legal remedies.

While there are many regulations that FINRA must enforce, some of the most common regulations that provide the basis for broker enforcement actions are rules that require brokers to make certain disclosures and to act with a certain degree of candor and forthrightness when advising clients. In a recent enforcement action, Temecula, California broker Jonathan G. Sweeney was charged with making material misrepresentations and omissions regarding material information when he advised a client to surrender two variable annuities. Records showed that Sweeney then used the proceeds to purchase two new variable annuities and that the broker had direct knowledge that he intentionally omitted several material facts that were adverse to his client in connection with the transaction. According to FINRA, this constituted a violation of Section 10(b) of the Securities and Exchange Act of 1934 as well as several other FINRA rules. This provision makes it unlawful for a person to use “any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe.” The statute specifically prohibits making untrue statements of material facts or omissions of material facts when advising clients or making investment decisions.

Selling annuities to have money to buy new annuities is often called “churning” or “switching.” Doing so usually has little benefit for the customer, but large benefits to the broker or advisor (as commissions can be 7% or higher).

Additionally, during a five-year period, Sweeney reused signatures from his customers to sign and complete new and separate forms that his clients had not actually signed. The broker then submitted these documents as bearing original signatures, in direct violation of several FINRA rules.

If you discover that your broker has failed to abide by securities rules and regulations, such as by failing to disclose material facts or making material omissions, you can bring a civil action against the broker and possibly his or her brokerage firm to recover compensation for your losses. Attorney Steve A. Buchwalter has handled numerous broker negligence and fraud cases involving a broad range of securities instruments and transactions. Although each case is unique and requires its own approach and strategy, the general rule regarding when a plaintiff can recover damages from a negligent or reckless broker is essentially the same. In general, a broker owes investors the highest duty of care when advising them regarding financial investments and the management of their accounts. This heightened duty is based on the greater level of sophistication that brokers possess compared to most investors. Showing that a broker or brokerage firm violated a securities rule or regulation is one effective way of establishing that the broker or brokerage firm failed to adhere to this duty of candor and effective advising. If you are successful in establishing a breach, you are entitled to the difference in value between your account after the negligent conduct and the estimated value of your account had the broker acted appropriately.

Securities transactions can be complicated, and it can be difficult to know whether your broker has violated your trust. At the Law Offices of Steve A. Buchwalter, we pride ourselves on providing thorough and thoughtful advice to investors throughout Southern California, including in Los Angeles, Pasadena, Beverly Hills, Newport Beach, Irvine, and Santa Barbara. We offer a free consultation with an attorney to help you learn about the legal remedies that may be available to you, so call us now at (818) 501-8987 or contact us online to set up your appointment.