We’ve litigated some of the most complex and cutting-edge securities disputes coast to coast and made the law on cryptocurrencyLegal Representation for Commercial Litigation in the Chicago Area
Recent exposure of the problems on Wall Street and with the securities industry has resulted in many people taking a closer look at what their brokers do. Securities disputes are increasingly common throughout the U.S. In many cases, they are resolved through mediation or arbitration. The business attorneys at the Loftus & Eisenberg can help clients in Chicago and other areas of Cook County address these conflicts.Pursuing Resolution of Securities Disputes
Most securities disputes revolve around investment losses. Under certain circumstances, these losses may be recovered from a brokerage firm or financial advisor. In many cases, when investors open an account with a brokerage firm, they sign an arbitration agreement requiring them to use the Financial Industry Regulatory Authority (FINRA) arbitration process. Moreover, SEC Rule 12 authorizes arbitration of securities disputes.
When a broker is hired, he or she is put in charge of a client’s investment capital. The broker is expected to perform his or her duties understanding that the client’s best interest comes first with respect to investment returns. When a broker knowingly breaches this duty, the broker may be committing securities fraud. The Illinois Securities Law of 1953 permits fraud claims against brokerage firms. Under this law, it is prohibited to engage in a transaction or course of business in connection with the sale or purchase of securities that “tends to work a fraud or deceit” on a purchaser or seller.
Under Section 130.771, these acts work or tend to work a fraud when they happen in connection with the sale, offer, or disposition of investment fund shares:
- Failure to disclose a principal underwriter’s allowance of discounts from an applicable public offering price, which are not the same for all dealers or which vary with the amount of sales by a dealer, unless the discount is given in connection with investors’ volume purchases;
- Failure to disclose to a dealer or salesperson offers of concessions or special bonuses in various, specified forms when these are not available to all dealers or salespeople on the same business;
- Failure to disclose payments by a wholesaler representative or concessions distributor that are greater than the dealer’s contract listing a concession;
- Failure to disclose an agreement to give a dealer any amount of brokerage business that is more than ordinary contractual allowances; and
- Failure to disclose agreements between participants in an underwriting group to share in profits or commissions arising out of an investment company’s orders.
One type of investment fraud is “churning.” This occurs when a broker buys and sells securities on commission without considering whether these transactions will benefit the client. Similarly, it may be fraud if a broker exposes the client to undue risk that leads to big losses.
There are also a number of causes of action for securities disputes that arise under common law. These include fraud, misrepresentation, breach of fiduciary duty, negligence, failure to supervise, churning, unauthorized trading, and overconcentration. Each cause of action requires proof of different elements. For example, under common law in Illinois, a plaintiff alleging fraud must establish that there was a false statement of material fact or misrepresentation, the person making the statement knew or believed it was false, and it was made with the intent to induce action by another in reliance on the statement. The plaintiff also must show that he or she acted in reliance that the statement was true, and losses were caused by the reliance.