Indiana Stock Fraud Lawyer

Stewart & Stewart Injury Lawyers

The Securities and Exchange Commission (SEC) and the National Association of Securities Dealers (NASD); two agencies working to bring integrity back to the financial marketplace, have long identified the following practices of brokers and financial planners as being unlawful:

• Churning - excessive trading of your account for commission purposes

• Unsuitability - investment recommendations inconsistent with your risk tolerance

• Overconcentration - concentrating on one investment for too long instead of diversifying your portfolio

The end of the stock market surge in the late ‘90s saw a new kind of fraud being perpetrated on the unsuspecting investor:

• Conflict of Analyst Interest - the practice of analysts negligently offering unwarranted “favorable” recommendations for stocks only to help secure commissions from selling large quantities of the same stock through initial and subsequent public offerings

What exactly is ‘Conflict of Analyst Interest’?
Conflict of Analyst Interest simply means that a brokerage’s financial analysts are attempting to wear two hats. Initially, they are serving you, as an investor, by carefully evaluating stocks based on the financial stability and profitability of each company. Secondly, analysts serve their institution’s investment bankers’ attempt to underwrite initial public offerings (IPOs) of large companies by offering favorable recommendations of that company’s financial stability and potential profitability.

By offering favorable recommendations, the brokerage virtually ensures that large quantities of a particular company’s IPO stock will be sold via their brokers. This means big commissions for both the firm’s investment bankers and its brokers.

Since the late ‘90s witnessed a surge of profitable technology-based IPOs, were the analysts serving the interest of their investors…or investment bankers? Did they compromise the future of millions of people like you solely to generate huge commissions by selling worthless stock from unstable companies?

What kind of damage is caused by fraudulent investment practices?
Recently in the news, big investment names like Merrill Lynch, Salomon Smith Barney, and Morgan Stanley have been popping up. These are just three brokerage firms, which have been over-profiting by allegedly fraudulent practices for several years. Unfortunately, much of their profits have been at the expense of unsuspecting people like you, the investor. A new study based off the Securities Exchange Commission’s records says investors lose $4 billion a year from fraudulent investment practices.

What rights am I entitled to as an investor of securities?
The following are your Investor’s Bill of Rights:

• Complete honesty in an investment’s advertising
• Disclosure of the risks involved with the investment
• Full explanation of your obligations and costs
• Ample time to consider
• Responsible advice
• Best effort management
• Complete and truthful accounting
• Access to your funds
• Recourse, if necessary
• And full and accurate information about the investment

What can I do to avoid fraudulent investment practices when I decide to invest in the future?
Since Conflict of Analyst Interest is the newest and most costly form of fraud happening recently, choosing an investment house with independent underwriters is a safe bet. A recent study revealed stock prices of firms recommended by non-underwriting analysts had a near 60 percent greater return on the day of the IPO than those recommended by underwriting analysts. *

* Roni Michaely & Kent Womack, professors at Cornell’s Johnson Graduate School of Management.

How can I seek compensation for my losses?
Securities arbitration is typically how investors issue grievances with fraudulent investment practices. It is like a trial, but without a judge and jury. A panel of arbitrators, usually people in-and-out of the investment industry, hears the investor’s claim. They weigh the arguments of each party, and finally render a binding decision.

The following are well-known claims by which you could receive compensation in securities arbitration against your investment advisor:

• Churning - excessive trading of your account for commission purposes

• Unsuitability - investment recommendations inconsistent with your risk tolerance

• Overconcentration - concentrating on one investment for too long instead of diversifying your portfolio

• Conflict of Analyst Interest - the practice of analysts negligently offering unwarranted “favorable” recommendations for stocks only to help secure commissions from selling large quantities of the same stock through initial and subsequent public offerings