Did you recently suffer from a big stock market loss?
Think it may have been due to negligence or fraud by your stock broker?
While losses are to be expected from time to time when investing in the stock market, there are times when your loss may be due to stockbroker negligence or fraud. In these cases, you may have no other choice but to take legal action against them in order to repair the damage that was done and get the compensation you deserve.
But how can you tell if you’ll have a legal case against your broker? Below we’ll look at the top 5 reasons that you might have a legal case after your stock market loss.
Responsibilities of Your Stock Broker
When you invest in the stock market with a stockbroker, your stockbroker has certain responsibilities and legal obligations to you. They have to follow certain regulations and requirements to make sure that you are getting what you deserve from the relationship.
A stockbroker that is untrustworthy or unreliable and is not fulfilling their duties can cause serious problems. You may suffer a major loss as a result.
If you believe that your stockbroker may have been dishonest with you or has taken actions that they shouldn’t have then you may have a problem. You may need to seek legal representation as a result in order to take action legal recourse against them.
Differences Between Normal Investment Losses
It’s important to remember that there is a difference between normal investment losses and losses that are due to a stockbroker who hasn’t done their job as promised. Don’t expect to be able to take legal action just because you suffered a major loss. You need to ensure that it was due to negligence or misconduct on the part of your stockbroker.
It’s important to consider the difference between these two types of losses before you seek legal representation. It’s important to consider what the cause of the loss was and what it means for you. Here are a few reasons you may have a legal case on your hands after a stock market loss.
1. Unsuitable Investments
Unsuitable investments are one common reason why you may have a case against your stockbroker. If your stockbroker has recommended stocks to you that were obviously unsuitable for you, this may be a reason for a lawsuit. A stockbroker needs to ask about your preferences and take your risk levels and interests into consideration before recommending anything to you.
Did your stockbroker pressure you into an investment you didn’t want? Did they recommend any investments that weren’t right for you and your risk tolerance?
If your stockbroker pressured you into unsuitable investments, and this led to your loss, you may have a problem on your hands that needs to be solved with legal action.
2. Unauthorized Trading
If a stockbroker performed any unauthorized trading of your portfolio you may also have a strong legal case against them. A stockbroker is required to check with you first before taking any actions on your account and before any stocks are bought or sold.
If they failed to get your permission and performed unauthorized trades for you this is a major problem. The only times that a stockbroker can perform a trade for you is when you have given him or her discretionary authority or when you have given him or her detailed permission to do so. If your stockbroker didn’t have permission to make a trade but did anyway, you may be time for a lawsuit.
3. Misrepresentations and Omissions
You may also need to sue your stockbroker if there was any misrepresentation or omissions on their part. A stockbroker needs to always be completely honest with you and should have clarity in everything they do. If they hid facts or figures from you and your loss occurred as a result, you may be able to take legal action.
All relevant information for a trade needs to be disclosed by the broker. This may include things such as the accurate disclosure of risk assessment, liquidity, and other material facts. If they failed to offer accurate details and information to you and omitted important details you may be entitled to legal compensation.
Overconcentration is another reason why you may be able to take legal action against your stockbroker. If your stock broker has not diversified your portfolio adequately enough and has overconcentrated your resources into one type of security or only one market sector, then this is a problem.
Diversifying your investments is a proven way to reduce risk in your stock market portfolio and if a stockbroker has failed to diversify your investments and has placed all of your money in one sector, then they may be guilty of a type of stock market fraud.
Churning is another big problem that may be a reason you should take legal action against your stockbroker. Churning is when there are far too many transactions on your portfolio that are unnecessary.
If a stock has been bought or sold multiple times in a short frame of time, for example, this may be an instance of investment fraud. Doing this allows a stockbroker to get paid more commissions since they will get paid for each transaction.
If they are performing more transactions than is actually necessary and that makes sense for your needs this may be a form of fraud. They may be legally liable as a result.
Recovering After a Stock Market Loss
A major stock market loss is not an easy thing to go through. If you believe that you wrongfully had a loss it might be time to do something about it and take legal action.
While the items mentioned above are some of the most common reasons you might have a case there are others as well. Be sure to consider carefully whether legal action may be the right choice for you.
Questions or comments? Need more help deciding whether you should take legal action? Contact us today to learn more about what we can do for you.