Securities Fraud - Stock Broker Fraud - Richard A. Nervig, P.C. - A Law Firm Dedicated to the Recovery of Investment Losses

TYPICAL ABUSES

Churning
Also known as excessive trading. Churning occurs when a broker, exercising control over the volume and frequency of the account trading in his customer's account, abuses the customer's confidence for personal gain by initiating transactions that are excessive in view of the character of the account. Typical examples of churning occurs when the broker engages in and out trading of the same stock, or frequent use of proceeds trades, that is a recommendation to use the proceeds from a sale to immediately but a new security.

If you suspect that the trading in your account is excessive and/or that your broker is buying and selling securities in your account for purposes of generating commissions and making money for himself, you may the victim of churning.

Selling Away and/or Unregistered Securities
This typically occurs when a broker sells a security which was neither offered nor otherwise approved by the broker's employer. The underlying investment sold by the broker usually turns out to be either non- existent or an unregistered security sold via fraudulent means. Investors falling victim to this type of scheme should be aware that brokerage firms have an affirmative obligation to reasonably supervise the sales activities of their brokers. Brokerage firms which fail to adequately supervise their brokers can and often are found liable to investors who have lost money by purchasing investments sold by brokers in selling away situations.

Unsuitable Investments
Suitability claims involve investment recommendations which are inconsistent with a customer's risk tolerance, needs and investment objectives. All brokers have a duty to know their customer and to further limit investment recommendations to those which are suitable based upon the customer's financial status, tax status, investment objectives and any other reasonable factors. Most suitability claims involve high risk and/or illiquid investments and/or a concentration of assets into a single type of security or group of securities.

Variable Annuities
Over the last several years many brokers and brokerage firms have been disciplined by securities regulators for engaging in abusive variable annuity sales. Annuities are like mutual funds wrapped up in an insurance policy. Usually the big selling point for the Investor is the "guaranteed death benefit" related to the amount of money you have paid in. Variable annuities were/are often sold as a guaranteed or insured "can't lose" investments. Advisors typically put the money invested in the annuity into "subaccounts" which are often aggressively invested in high risk vehicles and/or industries resulting in significant losses.

Unauthorized Trading
Unauthorized trading occurs when your broker runs trades in your account without your permission. Unless you have given your broker a Power of Attorney, ALL trades must be made with your permission.

Misrepresentation (Fraud)
Fraud occurs when one makes a misrepresentation of fact which is relied upon by the one hearing the misrepresentation and who then reasonably relies upon such to their financial detriment. Brokers and brokerage firms typically engage in fraud when they fail to disclose all facts which a reasonable investor would deem important prior to making an investment decision. Your broker has a duty to disclose all material facts necessary for the investor to make an informed investment decision.

Pyramid (Ponzi) Schemes
A Ponzi scheme is a fraudulent investment program whereby the funds raised from new investors are used to pay older investors. Also known as pyramid schemes, investors are typically enticed with high return low risk investments involving purportedly legitimate vehicles such as cd's, annuities, bonds, stock, debentures etc. As more and more funds are stolen by the perpetrators and as more and more investors begin demanding repayment of their funds, the ponzi scheme eventually falls apart. Although victims of these types of schemes can usually recover a portion of their funds through either receivership or bankruptcy proceedings involving the underlying fraudulent entity, investors seeking a meaningful recovery must usually look to deep pocket third parties such as the banks and/or brokerage firms who may also be liable to investors for their losses.