In the last few weeks, our office has been getting many calls and emails from investors who have lost much of their savings in this wildly volatile bear market.   Investors want  to know if they have a claim against their stockbroker broker, and if so,  will we take their case?  The answer is always “It Depends.” 

If you yourself selected all of the investments in your portfolio, and used your stockbroker as little more than an order taker, then your stockbroker’s responsbilities are usually limited to making sure that your orders are correctly placed.  There are some exceptions for what we call “financial suicide” cases, in which a stock broker would have a responsibility to advise an investor against making foolish choices to purchase clearly inappropriate or unsuitable investments.  But, in most instances, if your investment losses result from investments that were not recommended to you, we would not take your case.

But, where  the financial advisor or stockbroker recommends an investment, and the investor agrees to purchase based on the professional’s recommendation, the law imposes clear duties.  A stockbroker has no responsibility to predict the future, of course, and the fact that a stock declines is not in itself grounds for a claim.  However, a stockbroker DOES have an obligation to make recommendations that are in line with your needs.  A stockbroker cannot recommend a portfolio made up of risky investments if you cannot afford to take the risks that come with that portfolio.  A conservative  investor who is advised to invest all of their  portfolio in preferred bank stocks and loses money probably has a valid claim — not because the preferred stocks lost money, but because of the big risk that always comes  with investing all the money in stocks, and all in one sector.  

The other area where we see finanacial advisors and stockbrokers breaking the law is in not adequately describing the risks associated with an investment.  As anyone who has been reading the business section of their newspaper has learrned over the last month, Wall Street was marketing some very complicated and  risky investments.  Many of the stcobrkers who have been selling CDOs, Auction Rate Securities,  and other complicated debt investments did not understand them themselves.  So how could they have possibly explained those risks to their clients?  The law requires anyone selling investments to disclose all of the important risk factors of the investment.  If that did not happen, you may have a valid claim. 

If you think your investment portfolio was mishandled, please give us a call at 503-222-7475, or go to our Free Evaluation Page and tell us what happened.

At the behest of financial industry and its lobbyists, Congress has been bent on a course to “reform” the investment laws.  Translated, this means passing laws making it more difficult for individual investors to sue securities law violators to recover investments lost through fraud or malfeasance.  One example is the Private Securities Litigation Reform Act, which can  prevent investors from relying on the investment fraud laws of their states in cases involving mass fraud.  The justification for this reform is that it is the lawyers and the victims of fraud who are destroying the capital markets.  What a bunch of bunk!  These so-called reforms are nothing more than a legislative grant of immunity for corporate wrongdoers.

To be sure, there are a handful of lawyers who abused the litigation system for their own personal gain, by doing such things as hiring professional plaintiffs and filing suit without first investigating the facts.  Some of those lawyers sit in prison cells today, where they belong.  Those bad actors represent a small fraction of those of us who bring cases to address clear wrongdoing that ruins the lives of innocent investors.

The fact is that private litigation is the cheapest form of regulation.  It does not cost the government a dime, and most often targets wrongdoers who escape scrutiny of state and federal regulators.  And, private litigation has its own built-in controls to prevent abuse.  Since most investors are represented on a contingency fee basis, it behooves investment fraud lawyers to study their cases carefully before filing them.  The reason is simple:  if they don’t win, they don’t get paid. 

Yesterday we learned that the government is proposing a $700 billion bailout of financial institutions which have used investor money to make poor bets that enriched stock brokers, mortgage brokers, brokerage firms, and their executives.  Litigation reform is not the only reason why this happened.  But the laissez faire attitude of deregulation certainly contributed to it, and litigation reform was a piece of that package.  Now that our government is forced to leave the taxpayers holding the $700 billion bag for Wall Street failures, it is time to recognize that greed powers Wall Street.  Individual investor rights need to be strengthened to include mandatory attorney fees and punitive damages in egregious cases.   Let’s call an end of the efforts to dismantle investor rights.

Who would have believed even a year ago that we would have witnessed the demise of so many Wall Street behemoths?  First Bear, then Lehman and now Merrill.  And the fallout is not over yet.  Even the mighty, invincible Goldman Sachs is showing cracks in its foundation.  The failures of these firms raise a myriad of questions.  How could these firms let themselves get here?  Why does the government bail out Bear, the bad boy bully of Wall Street, and let Lehman sink into bankruptcy?  What does this foretell of the future of the brokerage industry?  Are we heading toward a world in which a few Uber-Banks own all the major broker-dealers and your bank teller tries to get you to sit down with your Merrill broker (who as a table right in the bank) every time you deposit your paycheck?  Is the loss of diversifiation of stock broker firms as dangerous as a lack of diversification in a portfolio?

All legitimate questions to be sure.  But the more fundamental issue, which we have heard no one discussing, is this:  Isn’t it ironic that these stock brokerage and investment firms, who afer all  have charged us billions of dollars to give their expert advice on managing our investments and planning for our retirements, cannot even keep themselves solvent?  How can these firms claim to be the masters of the universe, how can they claim to have investment advisory expertise, if they can’t even keep themselves out of financial ruin?  It is something worth considering the next time that a brokerage firm tells you that they have the resources of their entire firm behind them.