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Do you have a securities law claim under which you can recover losses and other damages from a stock broker or brokerage firm?

A securities fraud attorney may be able to help you recover losses and other damages from a stock broker or brokerage firm under the following claims:

A. Suitability. Prior to recommending the purchase of specific investments or a specific investment strategy to a customer, a stock broker is required to determine that the investments are suitable to that particular investor. A suitability determination is based upon many different factors such as age, investment objectives, risk tolerance, employment situation, needs, income, assets, and investment experience. If a stock broker's recommendations of unsuitable investments result in the investor incurring significant losses, that investor may have a suitability claim against the broker and his/her firm.

B. Churning. Churning occurs when a broker exercises control over an account and allows the broker's interest in making commissions to override the investor's interests in the account. When a broker makes a buy or sell recommendation for an account, that broker should have the investor's best interests based on their investment objectives in mind. If the broker makes excessive buy and sell recommendations for the purposes of generating commissions for the broker by each buy and sell, that broker is engaged in churning the account. Excessive turnover in the assets of the account and/or a high cost to equity percentage are often a sign of churning.

C. Unauthorized Trading. Generally, an investor can have two kinds of an account, non-discretionary and discretionary. In a typical non-discretionary account, the broker must consult with and obtain the consent of the customer prior to making a trade in the account. Unauthorized trading occurs when a broker makes trades in a non-discretionary account without the consent of the customer.

D. Securities Fraud. Most of the claims in this list are subsets of securities fraud which is employing a device, scheme, or artifice to defraud, or obtaining money by means of untrue statements of material facts and failure to state material facts in violation of state blue sky / securities laws or federal law (Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5). If a broker makes false statements to an investor or fails to advise the investor of certain important facts, the investor may be able to recover losses incurred resulting from this fraud.

E. Margin Disputes. Margin trading involves borrowing money from the brokerage firm to purchase securities greater in value than the equity in an investor's account. Due to the risky nature of trading on the margin, disputes with brokers often arise as a result of significant losses. If a broker trades on the margin without the knowledge or consent of the investor, the investor may be able to recover the losses resulting from the fraud.

F. Ponzi Scheme Investment Scams. Ponzi schemes generally involve promises of high returns by salespersons over short periods of time, but in reality result in stealing from Peter to pay Paul. Because returns to investors in ponzi schemes are often paid out of new investment monies from new investors, the scheme will ultimately fall apart when the new investors dry up, leaving all investors often holding a worthless investment. Stock brokers and their brokerage firms who sell ponzi scheme fraudulent investments may be found liable for selling unsuitable investments, securities fraud, sale of unregistered securities, failure to supervise, and other legal violations.

G. Failure to Supervise Broker. FINRA firms have a duty to supervise their registered brokers, and their failure to do so may form the basis of various legal claims against them. NASD Rule 3010 states: Each member shall establish and maintain a system to supervise the activities of each registered representative, registered principal, and other associated person that is reasonably designed to achieve compliance with applicable securities laws and regulations, and with applicable NASD Rules. Final responsibility for proper supervision shall rest with the member.

Examples of legal grounds for liability of Broker-Dealers in these situations include:

a) under tort and agency law, principals can be found liable for the acts of their agents even if they are entirely innocent and have received no benefit from the transaction;

b) a brokers Broker-Dealer can also be found liable as a control person of that broker under state and federal securities laws; and

c) claims can be pursued in arbitration based on violations of FINRA rules including Rules related to supervision, suitability, and outside business activities.

Obviously, this list is by no means comprehensive and all of the legal requirements of the above claims stated are not completely set out. This web site is not intended to give legal advice or create an attorney-client relationship. Please contactour securities lawyers for a free consultation if you believe your stock broker may be liable under one of the above claims, or for other wrongful conduct.

by W. Scott Greco