Sometimes unscrupulous brokers misrepresent the risks of an investment in order to make a sale. California and U.S. law prohibit this practice and give investors the power to assert their rights against fraudulent financial professionals in court or in some instances, arbitration. The law is on your side, and you can sue your former financial adviser for damages if he or she broke the law. Knowledgeable securities fraud attorney Steve A. Buchwalter has helped many residents of Ventura County, and elsewhere in Southern California, who have been deceived by their brokers.Investment Professionals Cannot Misrepresent or Omit Important Information
Under California Corporations Code § 25401, brokers are prohibited from omitting key information or making false statements of material fact when they are selling, buying, or offering a security. This law prevents financial professionals from lying about stocks or keeping important information from investors that may affect their decisions. Some common examples of “material facts” include:
- The risk associated with a particular security;
- Fees, commissions, or other costs associated with purchase;
- The target company’s financial health; or
- Other information that may affect the investor’s decision, such as bond ratings.
California law requires brokers to tell the truth about any such information they have. In addition to state law, the Securities Exchange Act of 1934 also prohibits them from misrepresenting or omitting material facts in the course of a securities sale. Generally, pursuing a claim under state law is better for defrauded investors, since California does not require a plaintiff to prove reliance on the material fact that was misrepresented or omitted. California has also established that every stockbroker owes a fiduciary duty to his client; in others words, he must treat the client’s account with the client’s best interests in mind.
When it comes to investments a stockbroker is recommending, the law goes further. Brokers are required to make recommendations based not only on their knowledge of the investment, but on their knowledge of the customer. In other words, even a moderate-risk investment is no good for a customer who cannot afford more than a very small loss. (In such cases, the broker should simply warn the customer away from investing altogether, although few do so.) Brokers are also forbidden from recommending customers buy more than they can afford. (Taking out a second mortgage on your house to buy stocks is rarely a good idea.)Seek Damages from Fraudulent Brokers
In court, a fraud action brought under California law must be initiated within the earlier of five years after the transaction or two years after the investor discovered the misrepresentation or omission. Most investment houses, however, require that customers resolve disputes through private arbitration, not civil court. Not only is private arbitration less expensive and quicker, but claims may eligible for filing up to six years after the events in question occurred (although the longer the wait, the harder it can be to win your case).
A broker sued for fraud can defend the charge in one of three ways. He or she can argue that the investor actually knew the truth, that the broker exercised due diligence but still did not know he or she was making a misrepresentation or omission, or that the broker would not have known about the misrepresentation or omission even if he or she had exercised due diligence. Each of these tactics can be countered by an experienced securities attorney.
A successful misrepresentation suit can allow the investor to recover damages, up to and including returning the security and receiving his or her original money back, plus interest (minus any profit that was made from the security). In the event that the investor sold the security prior to filing suit, he or she may still sue the broker for damages equal to the purchase price, plus interest (minus the amount of money the investor received upon sale of the security).Enlist a Los Angeles County Attorney to Take Action Against Investment Fraud
Anyone, even knowledgeable investors, can be burned by a broker who sold an 1inappropriate investment or has decided to omit or misrepresent important facts. Fortunately, California and U.S. law offer some protection to individuals in Los Angeles County and surrounding regions who have been deceived by the financial advisers whom they trust. Investment fraud lawyer Steve A. Buchwalter has helped people from doctors and lawyers to bus drivers and schoolteachers, from Santa Barbara, Camarillo, Pasadena, Beverly Hills, Irvine, and throughout Southern California, seek damages from fraudulent brokers. He also represents clients throughout the state and nationwide. To schedule a free consultation, fill out our online contact form or call (818) 501-8987.