Articles<title><META NAME="DESCRIPTION" CONTENT="Articles"><META NAME="KEYWORDS" CONTENT="Articles"><link href="css/style.css" rel="stylesheet" type="text/css" /> </head> <body> <script type="text/javascript" src="js/jquery.min.js"></script> <script type="text/javascript" src="js/fadeslideshow.js"> </script> <script type="text/javascript"> var mygallery=new fadeSlideShow({ wrapperid: "fadeshow1", //ID of blank DIV on page to house Slideshow dimensions: [910, 246], //width/height of gallery in pixels. Should reflect dimensions of largest image imagearray: [ ["images/banner1.jpg" ], ["images/banner2.jpg"], ["images/banner3.jpg"], ["images/banner4.jpg"], ["images/banner5.jpg"], ["images/banner6.jpg"] //<--no trailing comma after very last image element! ], displaymode: {type:'auto', pause:2500, cycles:0, wraparound:false}, persist: false, //remember last viewed slide and recall within same session? fadeduration: 1500, //transition duration (milliseconds) descreveal: "ondemand", togglerid: "" }) </script> <div id="warp"> <div id="header-bg"> <div id="contaner"> <div id="header"> <div id="header-top"> <a href="mailto:info@savagelaw.us"><img src="images/header-email.jpg" border="0" alt="Header email image of Savage Law, Business lawyer Florida"/></a> <h1>The Savage Law Firm, <span style="font-size:18px;">PA Tampa, Florida</span></h1> <div style="height: 12px;"></div> <p class="pa">A Professional Association</p> <span class="phone">813-251-4890</span><span class="ESQ">Robert Savage, ESQ</span> <div class="clear"></div> <div id="nav"> <ul> <li><a href="index.shtml" >Home </a></li> <li><a href='OurAttorneys.shtml' >Our Attorneys</a></li><li><a href='ArticlesFAQs.shtml' >Articles/FAQ’s</a></li><li><a href='ContactUs.shtml' >Contact Us</a></li><li><a href='Resources.shtml' >Resources</a></li><li><a href='Mediation.shtml' >Mediation</a></li></ul> </div> </div> <div class="clear"></div> <div id="banner"> <div id="fadeshow1" style="_margin-top: -3px; "></div> </div> <img src="images/bottom-banner.jpg" alt="Bottom banner image of Savage Law, Stock Loss Lawyer"/> </div><div id="content2"> <div id="leftnav"> <ul> <li><a href='PracticeAreaOverview.shtml'>Practice Area Overview</a></li><li><a href='FacilitatingForeclosures.shtml'>Facilitating Foreclosures</a></li><li><a href='Negligence-Fraud.shtml'>Stockbroker Misconduct</a></li><li><a href='Stockbroker-Brokerage.shtml'>Stockbroker Representation</a></li><li><a href='Business-Consulting.shtml'>Business Services</a></li><li><a href='Mediation.shtml'>Mediation</a></li><li><a href='Overview.shtml'>Business Dispute Resolution</a></li><li><a href="calendar.php?month=9&year=2010">Calendar </a></li> <li><a href="/blog">Blog </a></li> </ul> <div style="height: 15px; "></div> <center><a href="http://www.avvo.com/attorneys/33602-fl-robert-savage-1285709.html?cm_mmc=Avvo-_-Avvo_Badge-_-Micro-_-1285709" target="_blank" style="margin: 10px 0px 0px opx;"><img alt="Avvo - Rate your Lawyer. Get Free Legal Advice." src="http://assets1.avvo.com/images/microbadge.png?1267488232" border="0" /></a></center> </div><div id="right"> <h1>Articles</h1><p style='margin-left:50px;'><p align="center"><font size="2"><strong>Stockbrokers' Fundamental Requirement of Fair Dealing:</strong></font></p> <p align="center"><font size="2"><strong>Stockbrokers Can and Do Breach Their Duty</strong></font></p> <p>In business relationships the parties expect that each will deal fairly with the other and treat their transactions with respect and honor. In the brokerage industry, the regulatory organization for stockbrokers and firms known as the Financial Industry Regulatory Authority (FINRA) (f/k/a NASD) informs new stockbrokers and reminds current stockbrokers through continuing education that stockbrokers have a duty of fair dealing. While there are other rules that a stockbroker and his or her firm must follow, the most basic rule is the NASD's rule of fair dealing.</p> <p>This rule, NASD Rule 2110 - Standards of Commercial Honor and Principles of Trade, states that a broker and his brokerage firm, "<em>in the conduct of his business, shall observe high standards of commercial honor and just and equitable principles of trade</em>." Unfortunately, as evidenced by the number of formal actions that the NASD has filed against brokers and firms, this seemingly simple rule is apparently not simply applied.</p> <p>There are many ways in which brokers can and do violate the basic rules of the NASD. The following is a brief introductory guide to the types of issues that may have impacted your investments and that are activities for which the NASD has sanctioned brokers and/or their firms for violations of the fundamental "fair-dealing" rule:</p> <p>a. <strong>Recommending Speculative Low-Priced Securities </strong></p> <p>NASD Rule 2310 is the "Recommendations to Customers" or Suitability Rule. A violation of this rule occurs when a stockbroker breaches his or her responsibility to clients when making investment recommendations. The rule, simply stated, requires that if a broker recommends a stock to you, he or she must reasonably believe that the <em>recommendation </em>is appropriate for you and your financial situation. The broker is supposed to form his belief by asking you about your financial status, investment objectives, tax status, etc. before making recommendations. So, if a broker calls you out of the blue and makes a recommendation without investigating your financial situation and investment objectives, he or she has violated NASD Rule 2310, even if you do not act on the recommendation.</p> <p>FINRA is concerned with this activity because without a stockbroker learning enough information about a client's situation, there is a high risk that clients will receive and act upon unsuitable recommendations.</p> <p>FINRA rules clearly state what a stockbroker must do before making a recommendation. To make a suitable recommendation the stockbroker,</p> <p>shall have reasonable grounds for believing that the recommendation is suitable for such customer upon the basis of the facts, if any, disclosed by such customer as to his other security holdings and as to his financial situation and needs prior to the execution of a transaction recommended to</p> <p>a non-institutional customer, other than transactions with customers where investments are limited to money market mutual funds, a member shall make reasonable efforts to obtain information concerning:</p> <p>1. the customer's financial status,</p> <p>2. the customer's tax status;</p> <p>3. the customer's investment objectives; and</p> <p>4. such other information used or considered to be reasonable by such registered representative in making recommendations to the customer.</p> <p><em>See: NASD Rule 2310 </em></p> <p>Without having information about your financial situation, other holdings, and financial and investment objective data, a broker recommending low-priced speculative securities is not observing, "high standards of commercial honor and just and equitable principles of trade." In fact, if a broker recommends any investment without this information, he or she is violating FINRA's suitability rule.</p> <p>If your broker has recommended investments to you before asking about your financial situation, you should not do business with that broker and you should inform his or her manager of the broker's actions.</p> <p>b. <strong>Excessive Trading Activity or 'Churning' </strong></p> <p>Another way that your broker's actions may have harmed you is excessive trading, or 'churning.' A broker churns an account when he or she recommends and makes trades in your account primarily to generate commissions. There are no set standards in the NASD rules stating how many trades constitute 'churning,' but there are mathematical formulas that are used in the industry to help determine if you have been the unwitting victim of churning. Of course, the trading must be measured in relation to your investment objectives. That is, if you sought an actively traded account, then it would be less likely that the large number of trades in your account rise to the level where your broker breached his or her duty to you. You may want to speak with an attorney who has experience with these issues to determine if you may have a solid claim against your stockbroker to recoup some of your losses.</p> <p>c. <strong>Buying and Selling Mutual Fund Shares </strong></p> <p>As you are probably aware, mutual funds are designed as long-term investments and the charges for selling soon after buying a mutual fund reflect that design. If you sell your mutual funds within a few years of buying them, you will probably be charged significant fees to sell your shares. Unfortunately, there are those stockbrokers who treat mutual fund shares in the same manner as common stock and recommend to clients that they switch mutual funds without properly considering the issue of the additional costs associated with most mutual fund switches. Your broker is paid a significant and non-negotiable commission on each mutual fund purchase and unfortunately some brokers focus on those commissions rather than what is best for your investments. If your broker convinced you to buy and sell mutual funds in your account with any frequency, he or she likely was mismanaging your account. If this happened to you, you may have a good chance of recovering some of your losses from that stockbroker and brokerage firm for the costs and losses associated with the mutual fund trading in your account.</p> <p>d. <strong>Fraudulent Activity </strong></p> <p>Various types of fraudulent activity by stockbrokers have resulted in NASD-imposed sanctions against stockbrokers and firms. The following outlines some of the activities that have resulted in regulatory action:</p> <p><strong>(1) Discretionary Activity Without Proper Documentation </strong></p> <p>Many brokerage firms and brokers avoid this issue by prohibiting discretionary accounts. Nonetheless, some stockbrokers ignore both the NASD rule as well as their firm's policies and use discretion where they have none. If your stockbroker makes the decision to execute a trade in your account without first obtaining your permission, your stockbroker has improperly used discretion and you are entitled to recover any resulting losses and expenses. Any trade done in this manner without a client's proper written authorization is a violation of rules, including NASD Rule 2110 - the Fair Dealing Rule.</p> <p><strong>(2) Unauthorized Transactions </strong></p> <p>Your stockbroker is not permitted to make any trade in your account without first obtaining your approval for the trade. If your stockbroker does not get your order to purchase a stock before actually making the trade, your stockbroker has made an unauthorized trade and has violated both regulatory rules and his firm's policies. It happens that sometimes a broker will do a trade and then try to convince the client to keep the trade, or worse yet, try to convince the client that the client forgot that they had ordered the trade. If this tactic fails, a stockbroker will likely try to explain the trade away as an error and that the trade was meant for a different client and that he or she would fix it immediately. Sometimes a stockbroker will tell you that the trade will be taken care of in the hope that you won't notice when it is not fixed. Thus, it is vital that you review your account statements if this happens to you to make sure the trade was reversed from your account. Additionally, it is a good idea to write a letter to the branch manager so the manager is on notice of the stockbroker's activity.</p> <p>Unauthorized trades are also violations of NASD Rule 2110. Luckily, many states have statutes that permit you to either give back all such unauthorized trades or just give back unauthorized trades that were losing investments. Thus if you have experienced unauthorized trades, you have a good chance of recovery based not only on NASD rules, but also on state statutes that protect you from unauthorized trades.</p> <p><strong>(3) Misuse of Customers' Funds or Securities </strong></p> <p>If your stockbroker misused your funds or securities, you should have no problem spotting the problem. If, when you review your monthly account statements, you notice that all or part of your funds or securities are missing or are otherwise incorrect, you should immediately contact the branch manager by phone. Then you should follow up with a letter demanding an explanation and restitution. Do not simply call and get an explanation from your stockbroker make sure to follow up by sending a letter.</p> <p>In the typical brokerage firm, brokers are not permitted to borrow money from a client because of the inherent potential for conflict. If your broker attempts to borrow money from you, you need to immediately notify his or her supervisor in writing and ask to have a new broker assigned to your account, or you may even want to transfer your account. Not only is borrowing money from a client against the rules, it is a red flag that the broker may be having more serious problems with which you do not want to be involved.</p> <p><strong>(5) The Abuse of Margin or Recommending that Clients Make Investments Beyond Their Financial Ability. </strong></p> <p>Brokers recommend that clients use margin to make purchases for several reasons. One reason is that clients can buy more securities using much less money out of pocket because they are borrowing money to pay for stock investments. The stocks purchased with the loan proceeds collateralize the loan taken by a client. Margin is used ostensibly so the client can gain potentially bigger rewards, even factoring in the cost of borrowing money. However, it is important to remember that when a client makes a larger purchase, the broker makes more commission. If a broker recommends to you that you should purchase securities using margin above and beyond the client's financial means, the broker has likely violated regulatory rules and breached duties owed to the client. Thus, if you have or had large margin balances and were not required to put up much money, your broker may have liability to you for the losses in your margin account.</p> <p><strong>(6) Forgery </strong></p> <p>There is no defense to forgery and if a broker has forged your signature, you are in a strong bargaining position to recover losses in your account. Your case for demanding recovery is particularly good in cases of recommendations based upon an account form that was fabricated by your broker and forged by him.</p> <p><strong>(7) Omissions or Misrepresentations of Material Fact </strong></p> <p>If your broker convinced you to invest in a stock or other investment based on minimal or incomplete information, he or she has likely violated their duty to you. If your stockbroker does not reveal to you facts that could have a material impact on your investment decision, that stockbroker has violated the rule against the omission of material fact. The stockbroker may also be in violation of misrepresenting the material facts surrounding an investment resulting in further recovery options for you.</p> <p>As the foregoing reveals, your stockbroker has a broad duty to deal fairly with you and your account. There are many ways that your broker may have breached his duty to you and your investments. These breaches by your broker may be strong grounds for your recovery of investment losses due to your broker's misdeeds in relation to your account.</p> <p>This primer is not intended to be nor is it an exhaustive list of the possible reasons why you might want to sue your broker so if you think you have an issue please contact our firm.</p></p> </div> </div> <div class="clear"> </div> <div id="main"></div> <div class="clear"> </div> <img src="images/savage-farm.jpg" alt="Savage-farm image of Business attorney Florida" /> <div id="bottom"> <p>We have a local, regional and national practice. 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