Financial Advisor Fraud

Investment advisors must always keep the customer’s best interest in mind. But they often don’t. Some advisors may have an incentive to put you in bad investments to increase their commission; others may simply be crooks or cheats; and other investment advisors may have had good intentions, but terrible execution. If your advisor didn’t intend to cheat you out of money, you may have a case for negligence. If they did intend to cheat you, that’s fraud. Some examples of advisor fraud include:

Churning/ Excessive Trading

When a financial advisor performs excessive trades to generate commissions, this is known as “churning” and is a violation of the law. Advisors who engage in churning can be held liable for the commissions paid and losses associated with the advisor’s recommendations.

Misrepresentation of an investment

Financial or investment advisors must always  disclose facts concerning an investment, such as the presence of certain risks, charges or fees involved in investing, important financial information about the company, or bond ratings. Financial advisors should also be able to explain the investment they are selling you in detail; including the fee structure, historical performance, and reason the investment is right for you. Advisors who misrepresent investments in any way may be held liable for investor losses.

Guarantees

Financial and investment advisors are not allowed to promise customers that they will not lose money on particular transactions, make specific predictions about prices, or agree to share in any losses incurred by a customer. Your financial advisor may be especially liable for fraud if he or she gives you a guarantee and doesn’t honor it.

Where and how you can sue your financial advisor depends on federal and state laws, the investments you hold, and the terms of the contract or customer agreement you signed when you began working with your advisor. Generally, investors can sue their financial advisors through arbitration or civil lawsuits.

Some states, and a proposed federal rule, make financial advisors a “fiduciary.” This means that these financial advisors hold a special relationship of trust with their clients and are obligated to act solely in the client’s best interest. Fiduciary advisors cannot put their interests over that of their clients’ interests.

It may surprise many people, however, that not all financial advisors are fiduciaries. Current federal law has been under debate for this reason. Dr. Kent Smetters, from the Wharton School of the University of Pennsylvania, told The Wall Street Journal

Of the roughly 285,000 professionals in the U.S. who offer clients financial advice, fewer than 2% are fee-only advisers who follow a true fiduciary standard that prohibits commissions on products recommended to clients and legally requires the advisers to always put their clients’ interests first.

Investors should be careful when entrusting their money to financial advisors in states where they are not fiduciaries. If you would like to understand your rights regarding your financial advisors’ fiduciary status, speak with one of our financial advisor lawyers today.

If you think your financial advisor took advantage of you or a family member, there are steps you can immediately take to fight back:

1. Don’t delay
   Every legal claim has a certain amount of time in which you must file a lawsuit (known as a “statute of limitations”). If you don’t act within that time period, you may lose your ability to sue your broker. Sometimes when investors discover that they have been defrauded, they feel embarrassed and ashamed; this can paralyze people and prevent them from seeking help or taking quick action. Reacting rapidly when you discover a possible fraud is incredibly important because the passage of time may affect your rights.
2. Gather your documents
   Financial statements, stock trades, customer agreements, emails, and other correspondence with your financial advisor could be relevant and useful. However, if don’t have immediate access to all records that are relevant to your case, we are still happy to consult with you.
3. Consult with an experienced financial fraud lawyer
   Our skilled financial fraud lawyers can conduct an account audit to determine the full extent of your damages and determine whether misconduct occurred. Investment or financial advisors who commit one type of fraud or scam often don’t stop there — understanding the full extent of the harm is critical to determining how best to proceed.

Some investors are concerned about the prospect of paying an hourly rate or having to pay out-of-pocket in advance for legal representation to sue their financial advisor. We represent our clients on a contingency or “success-fee” basis, which means that if you win the case, the lawyer’s fee comes out of the money awarded to you. If you lose, you will not be required to pay your attorney for the work done on the case.

We are happy to discuss any questions related to our fees as well as different arrangements we can structure.

Scott Silver

Scott focuses his law practice on securities arbitration and litigation and plaintiff-side class action litigation, representing individual investors and institutions in claims against brokerage firms, investment advisors, commodities firms, hedge funds and others.

Eileen Epstein Carney

Eileen is involved in the firm’s securities practice and has over a decade of experience in the legal world. She received her law degree from American University in 2005.

Dave Stein

David’s advocacy has generated major recoveries for consumers impacted by financial fraud. He was named to the Top 40 Under 40 by Daily Journal and a “Rising Star in Class Actions” by Law360.

Amanda Karl

Amanda is spearheading a securities lawsuit against NantHealth concerning fraudulent statements to investors about the success of its key product.