The stock market has a long history of volatility that can send wild speculators to yacht dealerships and conservative retirees back to the workforce. The downturn of 2008 was no different. In 2008 alone, America suffered a historic loss in wealth totaling approximately $10.2 trillion. Over $6 trillion of that amount was attributed to losses in the stock market.
Typically, American investors hire financial professionals (commonly referred to as stockbrokers or financial advisers) to make sound investment decisions. The nature of the relationship between a stockbroker and a client is one based on trust in that professional’s perceived financial acumen. In fact, brokerage firms aggressively market themselves as skilled advisers competent to handle every aspect of their clients’ financial life, from investments to mortgages, life insurance, long-term care, estate planning and charitable giving.
Furthermore, brokerage firms often advertise that their financial advisers will monitor investments after a recommendation to purchase a security to ensure that the investor meets his or her long term investment goals.
In many circumstances, investor losses are caused by bad investment advice and in some instances, outright financial fraud. When this occurs, investors have a variety of legal claims that can help them successfully recover some or all of their losses. Unfortunately, investors typically do not have the capability and/or investment knowledge to determine whether their losses are caused by malfeasance or whether they were simply a natural consequence of investing in the stock market. As a result, the vast majority of investors do not even think to find out whether they might be able to recover their losses from advisers and their firms.
Even fewer know that they may have legal recourse. Statistics provided by Financial Industry Regulatory Authority Dispute Resolution, the organization that sponsors the arbitration forum handling virtually all disputes between financial firms/financial advisers and consumers, show that only 16,255 cases have been filed by consumers since November 2007. If you assume $6 trillion in stock market losses in 2008, these 16,255 cases amount to approximately one lawsuit for every $370 million in losses.
Unsuitability is the most common claim in securities arbitration cases. Another common claim involves misrepresentation and failure to disclose important facts about the investment. It should surprise no one that if a broker tells an investor something about a proposed investment, he is not allowed to lie. However, in addition to that basic rule, the broker has an affirmative duty to learn, understand and explain to the customer all the important facts and risks about a recommended investment or investment strategy. The explanation must be accurate, complete, fair and balanced. For a variety of reasons, brokers often fail to disclose all the risks.
Generally, securities arbitration claims must be filed within six years from the transaction, occurrence or event giving rise to the legal claim. There are many arguments available to extend the six year deadline. Given that it is now 2014, however, investors should consult with an attorney who specializes in securities arbitrations sooner rather than later to find out if you have a valid legal claim. Initial consultations with The Doss Firm, LLC are free.
Jason Doss is the owner of The Doss Firm, a Marietta-based law firm with a national reputation for representing investors all over the country in disputes with financial professionals. He is currently an adjunct professor at Georgia State College of Law in the field of securities law.