With the stock market crash of 2008-2009 there has been an onslaught of investors filing lawsuits against their stock brokers and brokerage firms for providing them with unsuitable advice. There is a direct inverse correlation with stock index averages and new case filings. In other words, in a down market more cases are filed. Many of these cases had no merit and were largely suits over market losses, but a large percentage represented investors that were legitimately steered into investments products that proved to be illiquid, commission laden, or a complete fraud, such as a ponzi scheme. All of these claims against stock brokers and brokerage firms must be filed with the Financial Industry Regulatory Authority or “FINRA” for short.
Recently investors have been having success bringing FINRA arbitrations against brokerage firms for the sale of the following types of investments:
1) Reverse convertible notes– These were marketed as safe securities that produced an income that are typically linked to the common stock of a particular company and if the underlying stock drops, then the note converts to common shares, and unsuspecting investors who thought they had a fixed income product end up with large amounts of falling common stock they never wanted;
2) Fannie and Freddie Mac preferred shares -sold on and after their 2008 IPO where investors were told the investments were government insured when they were not;
3) Tenant in common or TIC investments– Investors were told to shelter their real estate profits by purchasing a TIC through a 1031 exchange but ended up paying excessive commissions that far exceeded any tax liability and ended up with an over leveraged illiquid asset;
4) Private Placements– Many of these investments have proven to be illiquid, commission laden, and lack material disclosures to the investors;
5) Account Churning– This is where the broker trades excessively in the account with a high velocity generating excessive commissions usually disguised to the investors as “mark ups” or “mark downs”. This is an extra “hidden” commission the investors do not usually realize typically this is coupled with an excessive use of margin; and
6) Overconcentration– This is where a broker recommends a high concentration in one security or one asset class which can result in unnecessary risk, especially if you are at or nearing retirement.
If you are an investor and you feel your stock broker recommended an inappropriate investment or investment strategy that resulted in significant losses, Soreide Law Group offers a free consultation and portfolio analysis to decide if you have legal grounds to pursue a FINRA arbitration. To speak with a lawyer call (888) 760-6552 or (954) 760-6552.