The fraudulent misrepresentation or omission of material facts related to investment recommendations made by financial advisors is considered a cause of action for a FINRA securities arbitration claim for damages. The securities fraud claims filed under Section 10(b)(5) of the Securities Exchange Act of 1934, must involve some aspect of fraud, deception, misrepresentation, non-disclosure or omission of material facts related to the purchase or sale of a security.
According to the SEC anti-fraud regulations, an investor who lost money must prove the investment recommendations made:
- was a misrepresentation or omission of a material fact;
- was intentional, reckless;
- was in connection with the purchase of sale of a security;
- was relied upon by investors; and
- resulted in an investment loss.
An investor must prove that they reasonably relied upon the misrepresentation and as a result of the reliance on the broker’s advice they suffered losses. In the event of an omission or non-disclosure of a material fact, the investor must prove that the broker had a duty to disclose the facts in question.
A securities fraud claim requires an intent on the part of the financial advisor to misrepresent or omit material information to an investor. If the misrepresentation was not intentional a negligence claim is more appropriate. Most brokerage accounts are considered non-discretionary accounts which require approval by investors of all transactions executed in their accounts. As a result, the information provided by a financial advisor is relied upon by investors to make the correct decisions. If the information is incorrect or incomplete investors are at risk and brokerage firms can be held responsible for investment losses. Misrepresentation or omission of a material fact can be made in any of the following situations:
- inadequate due diligence was conducted concerning security offerings;
- failure to disclose of all material risks related to an investment;
- failure to disclose all costs related to transaction;
- forfeiture of any vested benefits from the replacement of a variable annuity;
- unrealistic assumptions for investment projections; and
- inaccurate performance calculations.
Investment losses that can be attributed to a financial advisor’s misrepresentation or omission of a material fact may result in a viable securities arbitration claim for damages. The misrepresentation or omission of a material fact related to an investment recommendation is a FINRA sales practice violation which may result in a viable securities arbitration claim for damages.
If a registered representative made a material misrepresentation or omission of material fact to you concerning an investment which caused you damages immediately contact the attorneys at Mathews Giberson LLP to learn more about your rights.