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Broker Liability for Unsuitable Investments

            Before a brokerage firm invests its customer’s money, it must make every attempt to familiarize itself with the customer’s condition, needs, financial situation, investment experience and risk tolerance and must perform due diligence to ensure that its investment recommendations are reasonable given the customer’s investment needs. 

            Your statement record may establish that the broker failed to act as reasonable and prudent brokers should have acted.  In many cases, a broker  disregards clear indications that the client had no desire to subject your savings to any significant risk of principal loss. 

The SEC has promulgated the so-called “Shingle Theory” broker liability rule as follows:

When a broker-dealer hangs out his shingle he impliedly represents, among other things, that he will recommend securities only if he has a reasonable basis for believing that they are suited to a customer's financial circumstances.[1]

FINRA Rule 2310 which requires a member to have reasonable grounds for believing that a recommendation is suitable for the customer based on other securities holdings, the customer’s financial situation, and their investment needs. 

Your broker may also have violated NYSE Rule 405 which requires that a firm use due diligence to learn the essential facts relative to every customer, every order and every account.  In addition, your broker’s conduct may have violated FINRA rules requiring honest and fair dealings with its customers and NYSE rules requiring firms to engage in good business practices.

Recent Client Wins:

$267,000 Award Against Brokerage Firm for Unsuitable Recommendations

$94,000 Award Against Brokerage Firm for Unsuitable Recommendations

$370,000 Award Against Broker Firm for Unsuitable Recommendations

$117,000 Award Against Brokerage Firm for Unsuitable Recommendations

 



[1] Lownfels at 1558 (citing In re Whitman & Stirling Co., 43 S.E.C. 181, 182-83 (1966); In re Powell & McGowan, Inc., 41 S.E.C. 933, 934 (1964).

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