Federal and state laws prohibit financial advisors and brokerage firms from lying to investors while recommending an investment. However, when billions of dollars can be made from a single lie, the potential for fraud is enormous.

If a financial advisor or brokerage firm omits or misrepresents material information to you while selling an investment, it is fraud. An omitted piece of information is considered “material” if knowing the information would have caused you to reconsider the decision to make the investment.

In many cases, it’s not what your broker says but what he doesn’t say that results in the most financial harm. If you feel your broker didn’t give you all the necessary facts and you lost money because of it, you may have a strong case to recoup your losses and receive compensation for damages.

How Misrepresentation and Omission Happens

The most common omissions and misrepresentations occur when a stockbroker hides or “bends the truth” about a risky investment. You might have requested the most conservative investments possible and your stockbroker said he was buying you the safest investments available. However, he actually bought you a portfolio of junk bonds.

Here are some other ways investment advisors might omit or misrepresent material information to unsuspecting customers:

• A stockbroker completely misrepresents the risks of an investment.
• A stockbroker lies about the future performance of an investment.
• A brokerage firm publishes glowing research reports on a company’s stock and tells you to purchase it, knowing full well it’s headed straight for bankruptcy.
• A stockbroker convinces a senior citizen to buy an annuity without disclosing the associated fees or the fact it will freeze up her retirement assets 10 years longer than her life expectancy.

Bringing Misrepresentation and Omission into Perspective

If a salesman sold you a beautiful car after showing you all its bells and whistles, but as soon as you tried to drive it home you discovered its engine was missing, would you ask for your money back?

The salesman omitted very material information from you. Had you known the engine was missing, you would never have made the purchase. Therefore, you have a right to be made whole.

Unfortunately, the biggest brokerage firms on Wall Street commit this kind of fraud every single day, causing millions of dollars of damages to unsuspecting victims. 

Why do some stockbrokers and investment advisors lie?

The reason is simple. Stockbrokers are under constant pressure to ‘make the sale’ in order to meet their quotas and benchmarks. If a broker doesn’t meet his quota, he could lose his job. If he exceeds it, he will be rewarded with large bonuses.

Innocent mom and pop retirees and highly sophisticated investors alike become the victims of elaborate false truths and deception just so brokerage firms can skim off the top and make their commissions. Regardless of age, education, income or experience, anyone can fall victim to the lies that have become commonplace on Wall Street.

Discovering Misrepresentation and Omission Fraud

Although victims of omission and misrepresentation do not typically discover the fraud until after they have suffered a tragic financial loss, it pays to be careful and diligent. Here are some ways you might find out:

• Your investment is completely different from what your broker said it was.
• You suffered massive financial declines but you thought you were in the safest investments possible.
• You don’t understand why your losses happened. The performance of your investment account just doesn’t make sense.
• You can’t remember how your broker initially described the investment, but you have a strong feeling you were misled.
• After researching your investments, you discover previously undisclosed risks or fees.
• Paperwork surrounding your investment confirms the material information your broker neglected to disclose.
• A widespread case of fraud is revealed in the media after intense market instability.

Do you suspect your financial loss was caused by omission or misrepresentation of material facts that would have caused you to think twice had you been aware of it?

Know Your Rights

Most states have adopted the Uniform Securities Act of 1956 to protect investors from fraudulent activity. Section 410 of this act holds a person or brokerage firm accountable who:

“Offers or sells a security by means of any untrue statement of a material fact or any omission to state a material fact…(the buyer not knowing of the untruth or omission)…and in the exercise of reasonable care could not have known, of the untruth or omission…”

Under Section 410, a guilty party who commits this kind of fraud:

“…is liable to the person buying the security from him, who may sue…to recover the consideration paid for the security, together with interest…costs, and reasonable attorneys’ fees, less the amount of any income received on the security, upon the tender of the security and any income received on it, or for damages if he no longer owns the security…

Under this statute, fraud victims can make claims for a refund of the amount they paid for the investment, minus income previously received and/or minus proceeds received from selling the investment. Victims may also be entitled to interest, attorney’s fees and the cost of pursuing the claim.

Federal laws also protect investors from fraud. One of the most important ones, Section 10(b), Rule 10b-5 of the Securities Exchange Act of 1934, says this:

“It shall be unlawful for any person, directly or indirectly…

…(a) To employ any device, scheme, or artifice to defraud, (b) To make any untrue statement of a material fact…or (c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.”

Rule 2211 of the Financial Industry Regulatory Authority, which governs the activities of all Wall Street brokerage firms and stockbrokers, says this about omission and misrepresentation:

(A) … No member may omit any material fact…if the omission…would cause the communications to be misleading.

(B) No member may make any false, exaggerated, unwarranted or misleading statement or claim in any communication with the public. No member may publish, circulate or distribute any public communication that the member knows or has reason to know contains any untrue statement of a material fact or is otherwise false or misleading.

Try and Get Your Money Back

If you suffered investment declines due to the fraudulent actions of your stockbroker, you deserve financial compensation. Victims may qualify for a full or partial refund of the original amount invested, in addition to other compensation.

While financial damages can be economically crippling, the realization you were lied to and played for a ‘sucker’ can be emotionally devastating. If you have fallen victim to this kind of fraud, it’s important to remember this is not your fault!

Pursuing a stock fraud claim will teach Wall Street brokerage firms that it’s 100 percent unacceptable to prey upon innocent consumers. Your claim may even prevent others from suffering as you have by forcing Wall Street brokerage firms to conduct business with honesty and integrity.

Contact Us

You may be eligible to receive compensation regardless of whether you sold or continue to hold the securities at issue. Contact us today to set up a free consultation. We will listen to your story, answer any questions you may have and discuss your legal rights and options.