Dominic Ismert intended to start investing again after a hiatus of nearly three years. Still, he lost a significant amount of money following what his lawyer described as “off the cuff” advice from a stockbroker at Charles Schwab & Co. to purchase shares in a complicated exchange-traded fund.
After investing in the United States Oil Fund between March and June of 2020, Ismert filed a FINRA arbitration suit against Schwab, citing “flawed investment recommendations” as one of his reasons for the complaint in August 2020. He was almost $500,000 in the red.
Ismert and his designated beneficiary plan were granted $144,000 in damages with interest by three public arbitrators in the FINRA dispute settlement system on February 7.
One of Ismert’s attorneys, Jason Haselkorn, InvestmentFraudLawyers.com, expressed his satisfaction with the verdict, saying, “We’re quite delighted with the judgment.” To have such a significant award levied against a big broker-dealer is very unusual. Our client was courageous enough to take against a company with substantial backing, and he won.
Online information on the U.S. Oil Fund ETF cautions investors that the fund is derivative and is not a substitute for investing directly in the U.S. oil markets. Haselkorn advised his client, a local business owner in the Kansas City, Missouri, area, that they should pass on the investment.
“The recommendation was made on the spur of the moment, without adequate investigation or analysis,” said Haselkorn.
The complexity of products is getting more and more attention from FINRA and other regulators. No explanation for the arbitrators’ conclusion was provided in the arbitration judgment.
Schwab has defended its customer service, saying that Ismert only received a fraction of the $550,000 compensatory damages he had requested.
“With our ‘Through Our Clients Eyes’ perspective at the center of all we do, Schwab is committed to providing outstanding service while delivering the high level of value clients have come to expect from us,” said Schwab spokesman Peter Greenley in a statement. Although we find [Ismert’s] charges false, we are relieved that the arbitrators awarded him so little.
Haselkorn argued that considering the caliber of his opponent, Ismert’s win was still maintained by the size of his award and remarked, “We have a client who sought to go up against a very large institution, and he came away with an award well over six figures.”
What is Financial Advisor Malpractice
Financial advisors are responsible for making investments that align with their client’s objectives. Before recommending an investment, they must conduct due diligence and communicate any risks or potential rewards to clients.
A broker or financial adviser failing to uphold their duty can lead to negligence claims. These disputes are complex, requiring expert analysis to establish damages and losses sustained by the plaintiff.
Unsuitable investments can pose too much risk, retain assets for an extended period, offer poor returns, or result in losses that deplete an investor’s funds.
According to FINRA regulations, all brokers and broker-dealers must make investment recommendations suitable for their customers based on three suitability standards: reasonable basis suitability, customer-specific suitability, and quantitative suitability.
Reasonable-Basis Suitability: In determining whether an investment strategy or transaction is suitable, a broker must assess the customer’s age, financial situation, investment objectives, experience, and risk tolerance. This information helps create a “customer profile,” which can help assess the level of risk involved with any recommendation.
Furthermore, the securities industry has implemented the “know your customer” rule to guide investment recommendations. This regulation requires brokers and financial advisors to use reasonable diligence when opening and maintaining a brokerage account to gain knowledge of their customers’ essential facts.
Suppose you are a private investor who has lost money to an unsavory investment scheme. In that case, you may have grounds for legal action against your financial advisor for either fraud or negligence, and such claims could allow for the recovery of your losses.
Investing is a complex subject that necessitates extensive education and guidance. For this reason, it’s wise to consult an experienced investment lawyer who can guide you in making wise investments while safeguarding your interests.
Fraudulent schemes often employ high-pressure sales tactics and sophisticated marketing strategies, including telephone calls, emails, and the internet.
Scammers often pose as legitimate investment professionals or companies and offer various investment opportunities. Typically, they promise high returns with little risk to you.
Brokerage Firm Failure to Supervise
If you’ve suffered financial loss due to the negligence or fraud of a financial advisor, you may be eligible for reimbursement with a failure-to-supervise claim. Under FINRA rules and federal securities laws, brokerage firms must monitor their brokers’ activities to prevent violations and keep the industry honest.
Brokerage firms must implement reasonable supervision systems and compliance procedures, including conducting yearly reviews with individual brokers to guarantee they abide by FINRA rules. This includes pre-hire screenings and office-wide checks to detect and prevent violations.
In addition, supervisory processes should include reviewing broker communications with clients and potential clients for advertising purposes to confirm they are not making false claims or misrepresentations to investors.
This duty is the foundation of the common-law doctrine of respondeat superior, which holds brokerage firms liable for the acts and negligence of their employees. To prove this, the plaintiff must demonstrate that the brokerage firm failed to reasonably supervise or direct its broker’s behavior or recommendations.
Financial advisors or brokers who repeatedly transact on an investor’s account violate securities laws and industry standards and violate their fiduciary duty to their clients under common law. This practice could constitute fraudulence under applicable regulations.
Churning refers to excessively trading in a customer’s brokerage account to generate commissions. This could include buying and selling stocks, bonds, mutual funds, annuities, or life insurance policies at an excessive rate.
Churning claims are typically founded in violations of federal and state securities laws. To prove a churning claim, one must show that the broker or financial advisor acted with knowledge, skill, or intent to defraud their clients.
Churning behavior must be excessive and under the direction of a broker or financial advisor. They must have express control over the account in question, which means they must have the authority to make investment decisions.