Short Selling (Short and Distort)

For many investors, having a trusted and reliable broker to guide them through the financial investment choices that they need to make is crucial. When that trust breaks down, or when the broker uses his or her sophisticated knowledge to take advantage of an investor, the outcome can be financially and personally devastating. There are many common ways that brokers exploit investors, including short selling, or a “short and distort” scheme. At the Law Offices of Steve A. Buchwalter, our Los Angeles securities fraud lawyer helps investors recover compensation and lost funds from fraudulent or negligent brokers. Our team has handled these matters in a variety of ways, including arbitration, mediation, and trials.

Our lead attorney has over two decades of experience assisting Los Angeles County residents, and we are prepared to put our experience to use for you. You should not let a broker get away with mismanaging or exploiting your investment accounts. Take action now.

In general, a short and distort scheme involves situations in which a trader manipulates a stock by short selling it and then using a smear campaign to cause the price of the target stock to fall. Many traders will take a long-term position on an investment, hoping that their investment grows as the company in which it has been invested or the asset in which it has been invested becomes more valuable. Taking a short position on an asset means that the investor or broker believes that the asset will decrease in value in a short period of time, usually only a few days or weeks. In a short-selling scenario, the buyer essentially borrows stock from a broker and then immediately sells it at the current market rate. The proceeds of this sale are then attributed to the buyer’s margin account. The short seller, who hopes that the stock will go down, will then cover the short sale by purchasing it in the market and making a repayment to the broker who loaned the stock.

When there is volatility in the market and investors are uncertain, it can become much easier for brokers to cause fear about particular stocks. In our increasingly digitalized world, it takes little effort to post messages on investment forums or to send out articles that contain negative information about a stock—regardless of whether it is true. If you are an investor who lacks sophisticated knowledge about the market, or who lacks sufficient time to verify whether an investment is in fact declining in value, it can be difficult to discern whether your broker is engaging in a short and distort scheme.

If you think that your accounts have suffered losses as a result of a short and distort scheme, you may be able to recover compensation by asserting a legal claim against your broker and the brokerage firm that employs him or her. Since brokers have a sophisticated level of knowledge and expertise when it comes to understanding the stock market and investment opportunities, brokers owe their investor clients a heightened duty of care. Also, a broker’s level of sophistication can make it easier for the broker to take advantage of a client when it comes to determining the legitimacy of a broker’s advice and counsel.

To recover compensation from a broker who fails to act according to his or her fiduciary duty, the plaintiff’s attorney must show that the broker did not act as a reasonably prudent and careful broker would have acted in a comparable situation. If the plaintiff is successful in establishing that the broker acted fraudulently or negligently, he or she may beentitled to receive the difference between the value of his or her account after the defendant’s improper acts and the amount that his or her account would likely have been worth had the defendant acted with due care.

You may also have a claim against the brokerage firm based on a doctrine called vicarious liability. This doctrine holds employers liable for the negligent or reckless actions that their employees take during the course and scope of employment. Also, brokerage firms have many regulatory duties under FINRA that require them to supervise their employees and to ensure that they are conducting business appropriately.

At the Law Office of Steve A. Buchwalter, we make it our priority to help investors and other individuals who have been burned by a careless or reckless broker. We have assisted many investors throughout Southern California with holding a greedy broker accountable and obtaining the justice that they deserve. We offer a free consultation to help you learn more about your legal rights and proudly serve people in Los Angeles, Orange, Santa Barbara, and Ventura County cities, such as Beverly Hills, Pasadena, Newport Beach, and Santa Barbara. Call us at (818) 501-8987 or contact us online to set up your free consultation now.