Securities Backed Lines of Credit

Broker Fraud Lawyer Representing Investors in Southern California

Investors range in levels of sophistication, with some people understanding securities and investment portfolios while others lack the skills necessary to evaluate the market and make wise money plays. This is where brokers come in. If you are unsure about how to invest your money or how to protect your financial future, hiring a seasoned broker can be a great way to achieve those goals. While most brokers take their jobs seriously, however, some brokers use their sophistication and the vulnerability of investors to their advantage, making financial decisions and unsuitable investments in their own interests or misleading investors. There are many types of investment vehicles, of which one that has raised some concerns in recent years is securities backed lines of credit. Los Angeles securities fraud lawyer Steve A. Buchwalter has assisted many Southern California residents with holding their brokers accountable after they mishandle their accounts.

Identifying Issues with Securities Backed Lines of Credit

The U.S. Securities and Exchange Commission has recently stated that the number of firms offering securities backed lines of credit (SBLOC) is increasing. In general, these securities are loans that are touted as inexpensive and simple ways to make additional cash by borrowing against other asset holdings in your portfolio without needing to liquidate these assets. The SBLOC requires monthly interest-only payments, and the loan is outstanding until the investor has repaid it. The investor can trade, buy, and sell securities in the accounts that are pledged. The loan can be repaid in full or partially at any time, and it is possible to borrow against it at a later date.

Although the SEC describes these investments as a key revenue source for brokerage firms, they note that investing in these securities may not comport with investors’ individual goals and financial wishes. Brokers advertise SBLOCs as a financing vehicle that can lead to major portfolio value, making it difficult for investors to get all of the information that they need about whether a security is the right investment for them. As a result, and in response to a 50% to 70% increase in SBLOC practices, the SEC issued an investor alert providing investors with additional information about how SBLOCs are marketed and the risks that may be involved with investing in this vehicle. One of the biggest risks associated with SBLOCs is that they increase the investor’s exposure to market volatility. Also, just because an investor may qualify for a loan does not mean that entering into this type of financial arrangement is the best idea.

Hold Your Broker or Brokerage Firm Liable

If your broker carelessly misled you into investing in an SBLOC, you may have a negligence cause of action against them. When it comes to brokerage firm liability, a brokerage firm is liable for the negligent or reckless acts of its broker employees. Since investors rely on brokers for their expertise and sophisticated knowledge, the law imposes the highest duty of care on them to act with complete candor and to adhere to the wishes of their clients. This means that brokers must refrain not only from carelessly mishandling accounts but also from engaging in deceptive broker acts. When an investor can prove that the broker engaged in intentionally misleading acts, they may be able to request punitive damages as well as compensation for the amount of money lost as a result of the broker’s misconduct. Punitive damages are an additional category of damages designed to punish defendants for particularly egregious conduct while discouraging others from engaging in comparable behavior.

Retain a Reliable Los Angeles Lawyer to Assist You With Recovering Damages

Learning that your broker may have misled you or abused your trust to advance their own financial interests can be infuriating and disturbing, especially if you have lost a substantial amount of money as a result. At the Law Office of Steve A. Buchwalter, our lead attorney has ample experience in litigating negligence claims against brokerage firms and understands what you may be going through during this stressful time. Attorney Steve A. Buchwalter proudly represents people throughout the Los Angeles region and elsewhere in Southern California, including in Beverly Hills, Pasadena, Newport Beach, Irvine, Santa Barbara, and other cities in Los Angeles, Orange, and Ventura Counties. Contact us at 818-501-8987 or contact us online to set up your appointment.