Have You Been Misled?
There are a variety of ways in which investors have been taken advantage of by their financial professionals.
Some investors are victims of fraudulent schemes which may involve outright theft, unlawful trade allocation or other types of Ponzi devices. Perpetrators invariably keep losses hidden from clients through issuance of false statements of performance and solicitation of new money. Fraudulent schemes can take place in hedge funds and at securities or commodities brokerage firms.
Mismanagement of Investment Portfolios
Brokers and investment advisors have a fiduciary duty to recommend only those securities which are suitable for their customers' investment needs and objectives. A common abuse of investors is the recommendation of over-concentrated positions in a particular security or class of securities, such as a 90% concentration in technology and telecommunications stocks. Such recommendations create undue risk for many types of investors. Retirement accounts of older employees should rarely be placed in risky investments.
Hedge Fund Suitability
Hedge funds are becoming increasingly popular among a wider range of individual investors. These unregulated funds sometimes engage in highly risky investment strategies which many not be suitable for many investors. Due to the lack of regulatory oversight, an investment professional's performance of due diligence prior to recommending a hedge fund to a client is essential.
Other Hedge Fund Issues
Hedge fund problems may include undisclosed turnover of money managers, undisclosed commissions and fees and conflicts of interest by investment professionals recommending and selling hedge funds to clients.
Excessive Trading and Churning
Brokers have an obligation not to trade a customers' account excessively for the purpose of generating commissions or other fees for himself and his firm.
Mutual Fund Abuses
Firms have a duty to recommend appropriate mutual fund classes to their clients. For example, Class B mutual funds are ordinarily inappropriate for clients investing large sums because of their high management fees and contingent deferred sales charges (CDSCs). Firms must also provide investors the ability to receive breakpoint discounts. Class B mutual fund switching (the buying and selling of Class B mutual funds on a regular basis) is improper due to the significant costs to clients.
Variable and Fixed Annuities Abuses
Some investment professionals recommend variable and fixed annuities to clients which may be unsuitable because of the extremely high commissions, administrative charges and fees in return for unnecessary benefits. Variable annuities are very often inappropriate for elderly investors and are often over-concentrated in risky equities. Annuity swaps or exchanges are often improper due to the significant costs to clients.
Research Analyst Fraud
It is improper for a research analyst to fail to disclose a conflict of interest which undermines the integrity of his research. Sometimes an analyst may not even believe in the statements within his research reports. If an investor actually and reasonably relies on such improper research to his detriment, an investor may have a claim against the analyst and his firm.
Employee Stock Options
Employees who are compensated with large amounts of stock options must be careful how the options are managed. There are a variety of ways in which investment professionals can protect their clients' employee stock options, which if not utilized may constitute negligence or a breach of fiduciary duty.
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Employees of financial firms sometimes also need legal assistance.
Employees of Financial Institutions
Brokers, financial advisors, investment bankers, analysts, traders and institutional salespersons sometimes have compensation disputes or other issues with their employers when they leave or are terminated. For example, employees who are terminated prior to receiving year-end bonuses may have a claim. Others who are terminated for unlawful reasons such as discrimination based upon age, race, gender, disability or sexual orientation may have claims against their employers. Firms who terminate salespersons or brokers for the purpose of retaining their books of business may be liable for such actions. Firms may not fraudulently induce employees of other firms to leave their positions with false statements about the existence of certain working conditions or business arrangements at the new firm. Firms cannot issue false and defamatory statements concerning an employee in regulatory documents upon their termination of an employee.
Registered representatives of the securities industry who are the subject of regulatory investigations need counsel experienced in protecting employees' interests.