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Unsuitable Investment Plans

At the Evans Law Firm, Inc., our stockbroker fraud attorneys know the precarious position investors are in. They place their funds into a variety of different investment accounts and stocks, relying on the financial expertise of their advisors and trusting that their financial return will be worth their while.

Although investments are a great addition to any financial portfolio and can contribute to a comprehensive retirement plan, investors need to be sure that their funds are used wisely for their benefit. If an advisor is misusing funds or investing them in ways that put the client at risk, fraudulent activity might be taking place.

Margin Trading

When a stockbroker purchases securities for his or her client using borrowed money, this is known as “buying on margin” or “margin trading.” While margin trading may seem to be the optimal plan for investors without a lot of cash value to trade immediately, in reality, it often causes a dramatic increase in the investor’s exposure to risk and financial instability. If an investor’s stockbroker purchases securities on margin or takes out cash from the client’s margin account, the investor must pay the interest due on the balance of these margin purchases to the brokerage firm. This racks up financial penalties and charges for the investor, while giving a significant boost to the brokerage firm.

Margin trading is a popular tool for many stockbrokers because of the financial gain the firm enjoys as a result. Stockbrokers may receive money based on the amount of the margin loans they are able to secure for their customers, and firms can also earn profits based on the interest payments. Many investment companies give their customers debit or credit cards that are directly linked to a margin account, making cash access practically instant.

Any securities held in a margin account are used as collateral to secure the margin loan, and if these securities decrease in value, the customer may end up being forced to make up the difference. This is known as a margin call. These calls can appear on very short notice, and the amounts can vary drastically. Securities can also be sold without notice to the investor, which could also cause a loss that the investor needs to make up. As a result, he or she may owe the brokerage firm more money than had been previously invested.

Unsuitable Investment Plans

A stockbroker who pushes margin trading on a client for whom it would be too risky may be violating suitability rules and requirements. This is a form of stockbroker fraud and brokers or agencies can be held legally responsible for their actions.

Margin trading can be profitable, but it needs to be handled delicately and by an experienced broker. The investor should also be knowledgeable about market conditions, their financial abilities to cover costs and the risks associated with this type of investment.

Additional types of unsuitable investments in California and elsewhere may also include: deferred annuity sales to seniors and indexed universal life insurance policies without proper and correct illustrations of performance.

Contact Us

The stockbroker fraud attorneys at the Evans Law Firm, Inc. represent clients who have lost significant amounts through bad investments or margin trading done by their stockbrokers. To discuss your case, and take control of your financial situation, contact our office at 415.441.8669 or www.evanslaw.com today.

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