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Investment Loss Attorneys: How to Recover Money Following Stockbroker Fraud or Misconduct

Jan 9, 2023 Articles

Have you recently suffered unexpected losses in your investment portfolio? Has your stock broker or investment advisor made excuses for the performance of your securities account? If you believe your broker’s misconduct or mistakes may be to blame, you may need a securities attorney’s help. Investment loss attorneys specialize in holding brokerage firms accountable by fighting for your right to recover your hard-earned dollars.

Junk Bonds

Junk bonds are bonds with low credit ratings (or no credit ratings). Brokers might advertise these bonds as having especially high yields, without mentioning the similarly high risk of financial loss. Disappointingly for investors, the issuers that sell these bonds may default, leaving investors with a worthless bond.

GWG L Bonds advertised especially high returns – some investors may have been tempted by rates as high as 5% to 8%. In January 2022, GWG Holdings failed to make over $13 million in payments to customers. GWG Holdings, the issuing company, filed for bankruptcy in April 2022, with $1.6 billion in outstanding L bonds.

Brokers may have recommended GWG L bonds for the sake of their high commissions, with no reasonable basis to believe the bonds would benefit their customers. FINRA Rule 2111 states brokers must have reason to believe that their investor can tolerate the risk associated with a particular investment product. Unfortunately, many investors in GWG L Bonds were elderly and retired, and their GWG L bond losses presented a significant blow to their finances.

Real Estate Investment Trusts (REITs)

REITs are illiquid investments – they are often not suitable for investors who might need to access their funds on a short-term basis. Non-traded REITs are especially high-risk because they do not trade on a public exchange. If a non-traded REIT loses money, investors may not be able to immediately withdraw.

Highlands REIT, for instance, lost money when its portfolio of office real estate lost value following the Covid-19 pandemic. Once the REIT share prices plummeted and investors attempted to make withdrawals, many were surprised to learn that non-traded REIT issuers can halt distributions once too many investors attempt to exit their positions.

Options Trading

Options trading is a complex strategy that aims to profit by accurately predicting a change in share price. It is a speculative strategy and always features the chance to lose money. Many investors suffered unnecessary losses following recommendations from their stock brokers to invest in a Yield Enhancement Strategy (YES) from UBS, a particularly complicated options trading strategy that only generated income when the market remained stable. Market volatility is inevitable, and the strategy therefore posed a risk that brokers should have shared with potential investors. YES allegedly generated significant funds for the brokerage firm, which unfortunately may have been an underlying motivation.

Investors can lose money on options trading even while working with a well-known name in the financial industry. Morgan Stanley faced a regulatory action regarding options trading, and its brokers have faced allegations that their use of options has resulted in millions of dollars in losses.

Recent research reports that retail traders (a.k.a. ordinary investors) are likely to lose money on options trading, a fact that brokers should always communicate with their clients.  

Private Placements

Private placements are unregistered securities. Unregistered securities are only required to provide a limited amount of information to the public, making it more difficult to evaluate their merits. Risky private placements often take the form of oil and gas investments.

Atlas Growth Partners (AGP) is a private placement formed to raise money for drilling developmental oil wells. The fees associated with these investments cut into returns for investors, in addition to other factors that made this private placement only suitable for accredited investors – i.e., investors with enough wealth to withstand heavy losses. Investors who feel they should not have been approved for AGP or a similarly risky private placement may have a case for an investment loss lawyer.

Insurance Products

Variable annuities and variable universal life insurance policies (VULs) combine an insurance product with an investment. The value of the policy fluctuates based on the performance of the underlying security. These types of insurance products are cited in many investor complaints, due to their complexity and the broker’s misrepresentation or omission of material facts concerning the policies’ costs.

Unsolicited Trades

Investors may have suffered losses following unsolicited trading. If a broker marks trades as “unsolicited” rather than “solicited” the firm will not perform a suitability review. This review allows a firm to determine whether the risks associated with an investment suit the investor’s age, risk tolerance, tax status, etc. It is therefore vital for brokers to accurately communicate which trades they solicited. If an investor notices that their broker has inaccurately reported their trades, they should review their account statements and contact an investment loss attorney with any concerns.

Unauthorized Trades

All too often, investors simply trust that their broker will recommend sensible trading strategies, only to discover too late that their trust was misplaced. Investors must approve each trade, unless an account has been specifically approved for discretionary trading in writing, by both the investor and the firm, brokers are not allowed to execute unauthorized trades. This is true even if the investor verbally authorized a trade.

What Can Investment Loss Attorneys Do for Me?

If you want to sue your broker, you may discover that FINRA arbitration is your only option – many investors sign investment contracts with pre-dispute arbitration clauses. These clauses require investors to pursue investment loss recovery through FINRA arbitration and not civil court. Your business attorney or personal injury attorney will probably not have the expertise necessary to best represent your case. Contact an investment loss attorney with Kurta Law for a free case evaluation.