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Misrepresentation & Omission of
Material Facts

The misrepresentation or omission of material facts concerning investment recommendations by a brokerage firm and its representatives may be a cause of action in a FINRA arbitration claim for damages. There are two types of misrepresentations and omissions; those that are fraudulent and those that are negligent.

Securities fraud claims filed under Section 10(b)(5) of the Securities Exchange Act of 1934 or other claims for misrepresentations, may involve some aspects of fraud, deception, misrepresentation, non-disclosure or omission of material facts related to the purchase or sale of a security.

According to the SEC anti-fraud regulations, an investor who lost money may recover damages by proving the investment recommendations made:

  • was based on a misrepresentation or omission of a material fact;
  • was intentional, reckless;
  • was in connection with the purchase or sale of a security;
  • was relied upon by investors; and
  • resulted in an investment loss.

An investor who reasonably relies upon the misrepresentation and as a result of the reliance suffered investment losses or in the event of an omission or non-disclosure of a material fact, the investor proves that the broker had a duty to disclose the material facts at issue, may recover damages.

A securities fraud claim requires an intention on the part of the financial advisor to misrepresent or omit material information to an investor.

If the misrepresentation was not intentional a negligence claim is more appropriate. The vast majority of brokerage accounts are considered non-discretionary accounts which require approval by investors of all transactions executed in their accounts. As a result, the information provided by financial advisor is relied upon by investors to make the correct decisions. If the information is incorrect or incomplete investors are at risk and brokerage firms can be held responsible for investment losses. Misrepresentation or omission of a material fact can be made in any of the following situations:

  • inadequate due diligence was conducted concerning security offerings;
  • failure to disclose of all material risks related to an investment;
  • failure to disclose all costs related to transaction;
  • forfeiture of any vested benefits from the replacement of a variable annuity;
  • unrealistic assumptions for investment projections; and
  • inaccurate performance calculations.

The Silver Law Group can help you determine whether an investment loss is the result of a brokerage firm and/or their financial advisor’s misrepresentation or omission of a material fact. If an investor suffers losses as a result of a misrepresentation or omission of a material fact they may be able recover their losses in a FINRA arbitration claim.

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