Can I sue my Texas broker for investment losses?

Workplace harassment FMLA employment law attorneyIt depends. Generally you cannot hold anybody else responsible for market losses on your investments. However, there are some situations where another party may be responsible for your investment losses. Some claims against brokers do not relate to market losses but to other negligent or fraudulent acts by a broker or adviser.

When considering lawsuits against a broker or adviser one must consider: (1) the liability issues; (2) the value of any lawsuit or other claim; and (3) the cost to prosecute claims with a consumer attorney in Texas. Often claims against brokers have to be filed in a specific forum. If you believe you have such a claim then you should contact a lawyer near you right away to make sure you file your claim in the right forum.

Here are some common situations that may give rise to a claim against them:

Your adviser/broker/401k plan did not follow your instructions or mis-processed your orders.

Whoever holds your account has a duty to: process your transactions as you request them, provided your transaction requests can process within your account (so subject to account agreements, plan rules, etc.); your account provider can process the order (you requested an investment they can purchase at the price you request); and the order request is specific enough to allow them to comply.

The importance of the terms of a transaction

In the event that a valid transaction does not process correctly, financial firms often will make their clients whole without having to proceed into arbitration or complaints to regulators. But it matters whether the client properly requested a valid transaction.

Sometimes an internal review will show the transaction could not process because external factors prohibited it. For example the investment was not available at your order specifications. How you construct the order can also affect how its processing. You must specify certain elements of an order, such as the name/symbol of the investment and some expression of quantity. In many cases other elements may be left to your adviser or broker, such as sale price or timing of execution.

As a result, these “market orders” with no specified price or timing, permits your account provider to execute the transaction at whatever price or time they chose. Market transaction orders can be technical; if you believe an order is the basis for a claim then you should talk to a lawyer near you to assess your potential claims.

Vagueness in orders

An order may be too vague or unspecific, often in the case of orders placed by phone or in person, where a review of the conversation does not create enough specifics to allow the account provider to execute a valid order. In this case, the firm has no duty to execute a transaction and may even be liable to you for processing a transaction without a valid order.

Depending on the specifics of the facts, you may or may not have a valid claim against your account provider. Your first step should be to inform them, preferably by phone and in writing, of your concern and allow them to perform an internal investigation and try to resolve the matter voluntarily.

Your adviser/broker recommended an inappropriate/unsuitable investment.

Every employee of a financial adviser or brokerage firm that accepts orders, opens accounts or gives advice must obtain a set of licenses based upon the nature of the work a given employee performs. Even licensing solely for accepting orders from clients permits a certain degree of latitude to offer recommendations to clients.

Any and all recommendations and advice must be suitable for a client. Often firms ask for information when opening an account to determine what kinds of investments would be suitable recommendations. Whether or not firms ask for this information, there is a duty to determine suitability before giving any recommendation.

Often brokers or advisers give unsuitable recommendations when an adviser or brokerage rep gives off the cuff recommendations (e.g. “I really like X stock,” or, “I have made a lot on this mutual fund,”) where they may not have been intended as recommendations but the client clearly can take it as an endorsement of a particular investment.

Unsuitable recommendations can occur when the employee fails to check records or investigate for suitability prior to offering it. They can also arise when an adviser or broker sells a set portfolio to clients and some of the internal investments are unsuitable. It is also common for unsuitable recommendations to occur when the employee is pitching to clients whatever pays the best commissions.

If you believe you have experienced account losses due to unsuitable recommendations, it may be best to first speak with an attorney prior to bringing it to the attention of your account provider. You may need to protect records with the help of your lawyer before notifying the broker and giving it time to change or destroy records.

The investments offered in a 401k plan may be unsuitable under ERISA requirements.

401k plans must offer prudent investment options under ERISA. Some investment options in a 401k may in imprudent for a retirement account under ERISA rules. Any losses attributable to the investment may have to be restored by the plan. This generally applies even when the employee makes investment choices, with the exception of investments chosen in a brokerage window. (Where the plan offers a brokerage account within the 401k to obtain a wider range of investments.)

Furthermore, the way the plan selects certain investments may give the inference that the plan recommends that fund. That recommendation may be unsuitable for some plan participants. This is a far more limited liability but one that may arise.

If you believe your plan is violating ERISA requirements you should speak with an attorney. Lawyers help clients resolve claims under ERISA. ERISA claims follow their own complicated process. Lawyers understand this process and help clients in Fort Worth and Dallas, Texas resolve claims.

Accounts are churned or the broker advised you to churn through investments.

Churning is when an adviser or broker buys and sells investments at a rapid pace to generate commissions. It is not churning if the account holder agreed to trades in that manner, like day trading; but it is churning when the rapid transaction rate is unsuitable and unsupported by the account owner’s investment objectives. It is unsuitable to advise a client to process transactions rapidly if that does not meet their investment objectives. If you believe your broker is churning your account you need to speak with an attorney immediately.

Failing to disclose required information.

Financial regulations require certain information to be provided in advertising, websites, prospectuses, charts, graphs, etc. Depending on what kind of investment you purchased a client must be provided specific information in specific forms. Failing to do so can give rise to liability on the account provider. This typically turns on whether the information not provided would have resulted in not purchasing the investment. If you believe you lost money due to a failure to disclose, speak with an attorney to review the situation.

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