Securities Fraud Lawyer

Fiduciary Duty

A fiduciary is someone who is obligated to act on behalf of another. But legally, it is much more than that. A fiduciary is obligated at all times to put his clients’ interests ahead of his own. In the investment context that means not only the obligation to pick suitable investments, it also means selecting the best investment choice at the best price within the client’s area of need.

The state of Nevada imposes a fiduciary duty on broker dealers and investment advisors who provide financial advice to clients in Nevada. Among the requirements, advisors must: perform a professional level of due diligence into the investment prior to making the recommendation to purchase; convey all of the risks of the recommended investment or strategy; provide all current publicly available information to the client; ensure the investment advice is tailored to the client’s specific needs; and, comply with all applicable rules and regulations concerning the marketing of the investment. In addition, a fiduciary must avoid conflicts of interest, and must only charge reasonable fees.

While Nevada has long held financial advisors to a fiduciary standard as a result of case law, the door was left open with the possibility that under certain circumstances a fiduciary duty might not apply. Nevada closed this loophole with the passage of Senate Bill 383 in 2017. Now all investment advisors and broker dealers providing investment advice for a fee in Nevada are held to a fiduciary standard.

Churning

Churning or excessive trading is when a broker dealer makes investments to generate commissions, rather than acting in the best interest of his client. Churning affects the value of the account because the commissions charged eat into the account’s equity, leaving the investor with less money to generate a return. When “margin” or borrowed money is used, it compounds the affects. As an example, if a client has an account that is worth $100,000 and the broker dealer makes $600,000 in purchases, charging a 1% commission on each purchase, then the commissions total $6,000 (more, if commissions are charged on sale transactions.) If the account uses margin, and the margin costs over this same period are $4,000, then the total cost to the client to have the account managed is $10,000, or 10% of the $100,000. In order to “break even” the account needs to generate 10% a year. Historically, to achieve a 10% return an investor needs to incur moderate to high risk in his or her portfolio.

Using the same example, if there are $600,000 in purchases in the account in the span of a year, and the average account value is $100,000, the account can be said to have been turned over 6x, which courts have found to be evidence of churning. Of course, any transactions that are unauthorized, or excessive in light of a client’s stated investment objectives could be a violation of state and federal securities laws.

Where are Most Nevada Investment Related Disputes Resolved

The majority of investment disputes in Nevada ae resolved in arbitration before the Financial Industry Regulatory Authority or (FINRA). This is because most broker dealers require clients to sign a predispute arbitration agreement requiring that any dispute or claim be filed through FINRA. In addition, FINRA’s rules require brokers to submit to arbitration at the request of the customer. Disputes not involving a broker dealer are resolved either in court, or in another arbitration forum, such as the American Arbitration Association or JAMS. Most investment advisors have “AAA or JAMS” clauses in their customer agreements. Cases involving unregistered broker dealers and investment advisors are generally resolved in state or federal court.

Differences Between Arbitration and Court

There are tradeoffs to submitting a dispute to arbitration vs. filing in court. Arbitration is a “court of equity”, meaning that the arbitrators need not strictly follow the law, and can “do justice “as they see fit, so long as their decision has a basis in the facts, and is not so far outside the letter and spirit of the law. In some states arbitration is not considered to be a “civil action” and therefore statutes of limitations that could bar some or all of the claims do not necessarily apply. Furthermore, arbitrators generally are more likely to want to hear all of the facts of a case, rather than dismiss the case before hearing on an issue of law. Most importantly, arbitration proceedings involving investors are generally completed in a year’s time, and are not subject to appeal, absent a limited group of issues, such as bias or conflict of interest.

The Self-Directed IRA Community: A Haven for Scammers

You put aside money every paycheck to save for retirement, carefully balanced your portfolio and spent hours hunting for mutual funds with the lowest annual expenses. So why would you trust your precious, irreplaceable retirement savings to an unlicensed financial advisor selling unregistered securities?

The self-directed IRA community is a zombie land of disbarred financial advisors, conmen pitching unregistered securities, and flimflam artists with get rich schemes. There is a reason that self-directed IRAs are considered graveyards for retirement capital; it is an unregulated landscape where anything goes. The toll keeper is the self-directed IRA Custodian, but other than charging an annual fee and sending the IRS an annual statement, they do nothing, least of all approve or pass judgment on the investment made in the account.

Discuss Your Situation With a Securities Fraud Attorney

As an investor, you may be exploited by unscrupulous brokers and firms. If you are a victim of securities fraud, you should retain a knowledgeable investment loss attorney to pursue compensation for your losses. Mr. Liebrader is an experienced securities fraud lawyer who is based in Las Vegas. He has been lead counsel in more than 1,000 cases representing people who have experienced investment losses. He has secured more than $40 million in settlements, verdicts, and judgements. Contact us at 702-380-3131 or via our online form to set up an appointment.