The Securities Fraud Lawyers at Greco & Greco, P.C. regularly represent residents from across the country, including Massachusetts, in disputes with their financial advisors and securities salespersons. Common claims include suitability, violations of FINRA Rules, negligence, fraud, misrepresentation, ponzi schemes, breach of fiduciary duty, SEC Regulation best interest, professional malpractice, and other claims. Please contact Scott Greco for a free attorney consultation about your case. We serve clients from all areas of Massachusetts, including Boston, Worcester, Springfield, Lowell, Cambridge, New Bedford, Brockton, Quincy, Lynn, and Fall River.
If an individual investor has a dispute with a FINRA brokerage firm or stock broker, he/she most likely will have to arbitrate through FINRA’s Dispute Resolution system. FINRA Arbitration holds arbitration hearings in one Massachusetts city, Boston.
We understand that many of our clients cannot afford to hire an attorney because they have lost a large portion of their life savings. Our attorneys can represent harmed Massachusetts investors charging only a contingency fee. This means that our clients do not have to pay any attorneys fees up front, and only pay us out of monies recovered in your case.
Securities related business in Massachusetts is regulated by William Galvin, the Secretary of the Commonwealth of Massachusetts. The primary mission of Secretary Galvin’s Securities Division is “investor protection.” Its website asserts that it “works to ensure a free and competitive securities market in Massachusetts, thereby increasing investor confidence…” The Securities Division website further provides information on investor education programs, resources for Seniors, provides an online investor complaint form, and provides links to various investment related organizations.
Effective in 2020, Massachusetts regulations impose a fiduciary standard on financial advisors registered with a securities Broker-Dealer. Specifically, 950 Mass. Code Regs. 12.207 requires that Broker-Dealer agents act as fiduciaries when “providing investment advice or recommending an investment strategy, the opening of or transferring of assets to any type of account, or the purchase, sale, or exchange of any security.”
The Massachusetts Uniform Securities Act, Chapter 110A, provides for civil liability of financial advisors who engage in fraudulent schemes, or sell securities while misrepresenting facts or omitting “material” facts. This statutory civil liability provides for recission or damages, plus interest at 6% and reasonable attorneys’ fees.
Common Legal Claims by investors against their financial advisors in Massachusetts
Suitability/Regulation Best Interest. Prior to recommending the purchase of specific investments or a specific investment strategy to a customer, a stock broker is required to determine that the investments are suitable to that particular investor. A suitability determination is based upon many different factors such as age, investment objectives, risk tolerance, employment situation, needs, income, assets, and investment experience. If an advisor’s recommendations of unsuitable investments result in the investor incurring significant losses, that investor may have a suitability claim against the broker and his/her firm. Suitability claims have been superseded in 2020 by SEC Regulation Best Interest which requires that recommendations of securities and securities strategies be in the best interest of the customer.
Churning. Churning occurs when a broker exercises control over an account and allows the broker’s interest in making commissions to override the investor’s interests in the account. When a broker makes a buy or sell recommendation for an account, that broker should have the investor’s best interests based on their investment objectives in mind. If the broker makes excessive buy and sell recommendations for the purposes of generating commissions for the broker by each buy and sell, that broker is engaged in churning the account. Excessive turnover in the assets of the account and/or a high cost to equity percentage are often a sign of churning.
Unauthorized Trading. Generally, an investor can have two kinds of an account, non-discretionary and discretionary. In a typical non-discretionary account, the broker must consult with and obtain the consent of the customer prior to making a trade in the account. Unauthorized trading occurs when a broker makes trades in a non-discretionary account without the consent of the customer.
Securities Fraud. Most of the claims in this list are subsets of securities fraud which is employing a device, scheme, or artifice to defraud, or obtaining money by means of untrue statements of material facts and failure to state material facts in violation of state blue sky / securities laws or federal law (Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5). If a broker makes false statements to an investor or fails to advise the investor of certain important facts, the investor may be able to recover losses incurred resulting from this fraud.
Margin Disputes. Margin trading involves borrowing money from the brokerage firm to purchase securities greater in value than the equity in an investor’s account. Due to the risky nature of trading on the margin, disputes with brokers often arise as a result of significant losses. If a broker trades on the margin without the knowledge or consent of the investor, the investor may be able to recover the losses resulting from the fraud. Recommendation of a margin strategy falls under Regulation Best Interest.
Ponzi Scheme Investment Scams. Ponzi schemes generally involve promises of high returns by salespersons over short periods of time, but in reality result in stealing from Peter to pay Paul. Because returns to investors in ponzi schemes are often paid out of new investment monies from new investors, the scheme will ultimately fall apart when the new investors dry up, leaving all investors often holding a worthless investment. Financial Advisors and their brokerage firms who sell ponzi scheme fraudulent investments may be found liable for selling unsuitable investments, securities fraud, sale of unregistered securities, failure to supervise, and other legal violations.
Failure to Supervise Broker. FINRA firms have a duty to supervise their registered brokers, and their failure to do so may form the basis of various legal claims against them. FINRA Rule 3110 states: Each member shall establish and maintain a system to supervise the activities of each registered representative, registered principal, and other associated person that is reasonably designed to achieve compliance with applicable securities laws and regulations, and with applicable FINRA Rules. Final responsibility for proper supervision shall rest with the member. Registered Investment Advisory firms also have a duty to supervise.
Examples of legal grounds for liability of Broker-Dealers in these situations include:
Obviously, this list is by no means comprehensive and all of the legal requirements of the above claims stated are not completely set out. This web site is not intended to give legal advice or create an attorney-client relationship. Please contact our securities lawyers for a free consultation if you are a Massachusetts resident and believe your financial advisor broker may be liable under one of the above claims, or for other wrongful conduct.