Investment Advisor Dispute Arbitration and Litigation

Lax & Neville LLP has represented numerous investors against their investment advisors in arbitrations and state and federal court litigations. Pursuant to the Investment Advisors Act of 1940, an investment advisor is any person or group that makes investment recommendations or conducts securities analysis in return for a fee. A registered investment advisor, or RIA, is an investment advisor who has sufficient assets to be registered with the Securities and Exchange Commission (“SEC”) or a state securities regulator. Investment advisors owe their clients a fiduciary duty to put their clients’ interests ahead of their own and to disclose all material conflicts of interest. When an investment advisor breaches its fiduciary duty to its customer, or engages in other sales practice abuses, such as fraud or unsuitable investments, the customer may have a case against their investment advisor. The forum for such dispute depends on whether there is a forum selection clause in the investment advisor agreement between the investment advisor and customer and is usually court or arbitration before a panel such as the American Arbitration Association (“AAA”). Our attorneys have the experience and expertise to evaluate whether an investor has a viable case against their investment advisor.

Depending on the amount of assets they manage, most investment advisers must fill out a “Form ADV” with either the SEC or the state securities agency in the state where they have their principal place of business. The Form ADV consists of two parts. Part 1 contains information about the adviser’s business and whether they have had past problems with regulators or clients, and Part 2 outlines the adviser’s services, fees, and strategies and forms the basis of the brochure which RIAs must provide to their clients. RIAs are required to update their Form ADVs at least annually.

Our firm’s attorneys are able to effectively represent our clients’ best interests in allegations over breach of fiduciary duty and investment advisory misconduct, including:

  • Failure to Diversify: Failing to sufficiently diversify a client’s account among asset classes and inside asset classes to meet a client’s objectives and risk tolerances. Diversification seeks to control risk and avoid excessive loss arising from volatility in one asset class. Sometimes, a failure to diversify claim is also called overconcentration because the broker’s failure to diversify leed to an overconcentration of one particular asset of asset class.

  • Misrepresentation and Omissions: Misrepresenting or omitting the characteristics of certain investments or overall account characteristics (such as risk profile) to the clients. Investment advisors are required to disclose any potential conflicts of interest on their Form ADVs, yet, some investment advisors fail to do so. For example, if an investment advisor is receiving additional outside compensation from a company in which it is investing its customers’ funds, it must disclose this additional compensation to its customer in order for them to make an informed decision.

  • Suitability: Recommending investments or overall accounts that are not suitable for a particular client’s objectives, needs and risk tolerances taking into account the client’s age, family situation, and financial assets.

  • Stock Manipulation: Manipulating stock prices for personal or corporate gain in violation of state and federal law.

  • Variable Annuities Fraud: Includes recommending unsuitable annuities often to increase the investment advisor’s commissions, not completely explaining the long-term investment characteristics or significant costs of annuities, or failing to completely advise investors about the associated risks.

  • Criminally Fraudulent Activity: Some misconduct by investment advisors is punishable by both criminal and civil statutes. An example of this is called “trading away.” In a typical trading away case, the investment advisor has recommended an investment outside of his or her firm. Often this investment is in a stock for a company that he or she controls, which may or may not be involved in a larger fraud, such as a Ponzi scheme. Other examples of criminal fraudulent activity include theft, forgery, and embezzlement.

  • Negligence: When an investment advisor’s conduct fails to meet the proper standard of care with regard to the investor’s account, that investment advisor may be liable for negligence.

In many investment advisory cases, clients have signed arbitration agreements that require private arbitration, frequently at the American Arbitration Association (AAA). The partners of Lax & Neville LLP have litigated and achieved millions of dollars of recovery for clients at AAA arbitrations.

If you believe you may have a case against your investment advisor, please contact our attorneys for a free consultation.

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