Brokers and brokerage firms owe a fiduciary duty to their clients, meaning that they must deal in good faith with them and put their clients’ interests above their own. This duty arises from the unequal relationship between a broker and a client and the confidential nature of the relationship. As with many other professionals such as doctors and lawyers, a broker’s clients rely entirely upon the broker/advisor’s knowledge, expertise, and advice when making important decisions. However, not all brokers take this duty as seriously as others, and sometimes this lack of care can rise to the level of fraud. Some of the most common types of securities fraud are misrepresentation and misrepresentation by omission. Contact a California securities fraud attorney if you have questions or concerns.
Misrepresentation vs. Omission
Misrepresentation and misrepresentation by omission generally involve a broker acting dishonestly toward his or her client. Federal law prohibits both misrepresentation and misrepresentation by omission in securities transactions. According to 17 C.F.R. § 240.10b-5, the federal statute that addresses manipulative and deceptive devices in the sale of registered securities:
It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,
- To employ any device, scheme, or artifice to defraud,
- To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
- 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.
A “material” fact is any fact known to the broker that an average investor should be told before buying or selling a security. Thus, misrepresentation includes a broker affirmatively making a false statement to his or her client. A misrepresentation by omission involves a broker intentionally concealing a material fact from the client. Although the broker’s conduct is different in each instance, the results are the same—the client lacks material information when making an investment decision, potentially harming them financially.
Elements of a Misrepresentation by Omission Claim
In order to prevail on a misrepresentation by omission claim, the plaintiff must show that the broker omitted facts and that the omission of these facts rendered the broker’s statements misleading. To make a case for misrepresentation by omission, the plaintiff must show that:
- The defendant concealed or suppressed a material fact,
- The defendant was under a duty to disclose the fact to the plaintiff,
- The defendant intentionally concealed or surprised the fact with the intent to defraud the plaintiff,
- The plaintiff was unaware of the fact and would not have acted as he did if he had known of the concealed or suppressed fact, and
- As a result of the concealment or suppression of the fact, the plaintiff suffered actual damage.
Let a California Securities Fraud Attorney Help
Proving misrepresentation by omission can often be very difficult because it requires the plaintiff to provide evidence of the defendant’s intentions at the time the events occurred, but an experienced attorney will be able to assist you in presenting the strongest case possible. Contact a California securities fraud attorney at the Evans Law Firm by calling (415) 441-8669 or by email. We can help guide your case through a jury trial or toward an equitable settlement. We handle cases involving securities fraud, physical and financial elder abuse, qui tam and whistleblower law, nursing home abuse, whole life insurance and universal life insurance fraud, and indexed, variable, and fixed annuities fraud.