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The ABC's of Securities Litigation Claims

When wrongdoing beyond market forces cause investment losses, investors have a wide variety of claims they may assert. Understanding what conduct supports a legal claim will help you protect yourself from abuses in the future and identify actionable conduct if and when it occurs. If you recognize any of the following scenarios in relation to your own investments, you should contact an attorney with experience handling securities litigation claims to discuss your situation.

Breach of Fiduciary Duty

This claim comes from common law as opposed to a specific statute. Brokers occupy positions of trust and confidence with their customers; therefore they owe them the highest duty of loyalty and fidelity. Investment activity that violates that duty may entitle you to bring a breach of fiduciary duty claim.

Conflict Of Interest

Conflict of interest claims have recently received a great deal of media attention. They occur when a large securities firm conducts both investment banking activities and stock analysis and brokerage. Securities analysts may be tempted or persuaded to give a particular stock a strong evaluation if the company is a client on the investment banking side of the business. Similarly, lower ratings may be given to competitors of clients. In either event, investor losses linked to this conduct have the potential for recovery under a conflict of interest theory.


Excessive trading on a client's account is called churning. Sometimes stockbrokers trade excessively because they want to boost their own commission. Clients lose money due to unsound timing of trades as well as the added broker fees.

Failure to Diversify

Brokers who put all of their clients' assets in a single stock or industry may be subject to a claim for failure to diversify. Brokers are supposed to lessen some the risks of being in the market by keeping their clients monies invested in a variety of securities vehicles.

Failure to Supervise

When management at a brokerage firms fails to properly monitor trading activity by its brokers and investor losses occur because of wrongdoing, investors may be able to assert a failure to supervise claim against the firm.

Ineptitude Or Malpractice

In general, malpractice refers to a situation in which a professional harms a victim by providing substandard services -- meaning that another equally trained professional might have avoided the harm caused to the victim. Brokerage malpractice refers to cases in which stockbrokers or analysts issue unfounded, incorrect, deceptive, or otherwise misleading advice to their clients. As a result, the client may make poor investment choices and lose significant amounts of money. A securities firm that employs a stockbroker guilty of malpractice may also have legal responsibility for investor losses.

Insider Information

Insider trading occurs when a person with inside knowledge about a company's dealings uses that information to trade stocks. People who may have access to inside information include brokers, stock analysts, investment bankers, and company employees. It is illegal for anyone with inside information to buy or sell stocks based on their unique perspective or special knowledge.

Market Manipulation

Market manipulation occurs when a company, broker, or individual investor undertakes activity in order to create a false impression regarding a security, its trading activity or price movement, or other, related market information.


All members of the securities industry face liability for giving out wrong information or concealing true information. Misrepresentations may exists in a company's public filings and papers or when a broker or brokerage firm publicly supporting a stock while privately admitting that it is a risk or a bad buy.

Omission of Facts

This form of securities fraud occurs when a company or broker intentionally misleads investors about material facts regarding a security by failing to disclose important information regarding the offering.

Risky Investments

Risky investments are made in stocks that have the potential to yield high returns, but also have a higher possibility of large losses. In fact, in the worst case scenario, all of the original investment may be lost. Responsible brokers make sure their clients understand the risk associated with their investment and only proceed if they are willing and able to cope with potential losses. Some examples of risky investments include start-ups and over buying on margin.

Trading Without Permission

Brokers must make their clients aware of their activities. They are not allowed to make trades on a client's account against the client's will.


Brokers who make investment recommendations that are inappropriate to the known objectives and background of a particular investor may be subject to claims for losses based on unsuitability.


Although it is difficult to determine if your losses will support a securities litigation claim, trust your instincts. If you note any suspicious activity and feel you have been wronged, contact an attorney with experience in securities and investment related legal claims to discuss the specific issues affecting your investment portfolio.

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