stockbroker misconductFalse statements and omissions of material fact in connection with the sale of securities is actionable under the federal securities laws. However, under the federal securities laws to state a claim for securities fraud under Section 10(b) of the Exchange Act, a private plaintiff must show that the responsible party, knowingly or recklessly, made a false representation or omission of a material fact, that was justifiably relied upon, and was the proximate cause of damages.

False statements are lies. However, false statements also often include guarantees, or the mischaracterization of potential risks and returns for any particular security or investment product. Fraud may also take the form of omission by failing to disclose, among other things, the brokerage firm’s financial relationship with the issuer, the lack of liquidity or a secondary market for the investment, the lack of due diligence by the recommending securities firm or broker.

While the falsity of any particular statement may be easy to prove, it may be difficult to prove that the misstatement or omission was knowingly false at the time it was made with either the state of mind embracing the intent to deceive or defraud or sci-enter, or was made in reckless disregard for the truth. Mere negligence, at lest under the federal securities laws, is insufficient.

investment arbitrationSometimes firms conceal, do not fully disclose, or bury in an avalanche of disclosure, important adverse facts. However, many times misstatements and omissions of material fact made by investment professionals are reckless, in that for example, the broker intentionally disregarded a known risk and failed to even read the prospectus.

Often, the omitted information is material. The “omitted information is material if there is a substantial likelihood that a reasonable shareholder would consider it important,” or the “omitted information “might give a reasonable investor pause.”

Often but for the misstatement or omission, the investor, had they been given the whole story, would not have made the subject investment.

Guiliano Law Group

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