Breach of Fiduciary Duty

Practice Areas Broker Misconduct Breach of Fiduciary Duty

Putting Investors’ Interests First After a Junk Bond Scam

Securities brokers and financial advisors have a duty to put their clients’ interests first. This fiduciary duty forms an important basis of the brokerage-investor relationship. Investors rely upon investment experts to guide them in making appropriate investment decisions. Therefore, investors have a cause of action when brokers or advisors violate their crucial position of trust by failing to act in the investors’ best interest.

The Wall Street-based law firm of Zamansky LLC holds financial advisors and securities brokers accountable for any breach of fiduciary duty associated with junk bond investments. Our investment loss attorneys have substantial experience in legal matters related to market transactions and securities litigation. We focus on recovery of the losses investors incur due to junk bond default or devaluation.

Breach of Fiduciary Duty in Junk Bond Investments

A fiduciary duty is the legal obligation of the broker or financial advisor to act in the best interests of the investor. Some breaches are cut-and-dry if the broker or advisor conducts an overtly fraudulent trade with the intention of making money for himself, such as perpetrating a Ponzi scheme or intentionally relaying false information. However, most breach claims arise from less transparent actions.

Examples of breaches of fiduciary duty related to junk bond investments include:

• Failing to conduct due diligence before making a junk bond investment transaction
• Recommending an unsuitable high-risk junk bond investment to a low-risk investor
• Recommending investment in a company in which the broker or advisor has an interest
• Engaging in a trade in which the broker or advisor has a conflict of interest
• Taking inappropriate risks on high-yield stocks in order to earn higher profits or commissions
• Taking risks on high-yield non-investment securities in an attempt to cover up losses
• Communicating insider information related to the company or investment opportunity
• Making multiple inappropriate trades, or churning, to earn transaction fees or commissions
• Outlining only the potential high returns without explaining the potential risks of default and devaluation

Not all losses are attributable to breach of fiduciary duty. The law sets particular standards for proving breach. Our attorneys are well-versed in the statutes and case law that define fiduciary duty and the actions that rise to the level of a breach. We regularly handle FINRA arbitration and class action litigation on behalf of investors who suffered losses as a result of their advisors’ breach of fiduciary duty.

Understanding Your Broker’s Fiduciary Duties

Brokers owe several fiduciary duties to their clients. Broadly, these duties fall into two categories: (i) duties owed at the time of recommendation (“point of sale” duties); and (ii) duties brokers owe to their clients on an ongoing basis.

Brokers’ “Point of Sale” Fiduciary Duties to Their Clients

While commonly referred to as “point of sale” duties, brokers’ transactional duties apply to all aspects of their investment recommendations. When you hire a broker, your broker is required to make informed and suitable investment recommendations, and your broker is required to execute trades (and only execute trades) in accordance with your instructions. As a result, all of the following are violations for which a breach of fiduciary duty attorney may be able to help you pursue a claim in FINRA arbitration:

• Failing to understand a security’s nature, structure and risks before recommending it;
• Making recommendations that are unsuitable based on a client’s portfolio and/or risk profile;
• Making recommendations without providing all material information to the client;
• Misrepresenting information about a security or the commissions or fees the broker will earn; and,
• Executing an unauthorized trade or failing to timely execute a trade in accordance with a client’s instructions.

Brokers’ Ongoing Fiduciary Duties to Their Clients

Along with these transactional duties, brokers may owe various ongoing duties to their clients as well. For example, courts have found that brokers may owe ongoing fiduciary duties to their clients when:

• A client is particularly young or old, has no prior investment experience, and/or relies exclusively on the broker’s advice to make investment decisions;
• A client is relying on the broker’s advice as a result of a longstanding relationship or the broker’s efforts to garner social trust; or,
• A client has given the broker actual control over the client’s portfolio rather than choosing to manage his or her portfolio personally.

Understanding Your Investment Advisor’s Fiduciary Duties

Similar to brokers, investment advisors owe various fiduciary duties to their clients as well. For example, investment advisors owe duties of trust, care and loyalty, and they must avoid self-dealing while fully disclosing all conflicts of interest. If you work with an investment advisor instead of a broker, you almost certainly rely on your advisor to not only provide advice and guidance but also to manage your portfolio on your behalf. This requires an extraordinary amount of trust and confidence, and, as a result, the law makes clear that advisors must put their clients’ interests first in all scenarios.

How a Breach of Fiduciary Duty Attorney Can Help

If you have concerns about your broker’s or investment advisor’s conduct, there are several ways a breach of fiduciary duty attorney at Zamansky LLC can help you. When you contact us, our first step will be to arrange a free and confidential consultation. If, based on this consultation, it appears that you may have a claim, we will conduct additional research, and if warranted, we will then fight to recover your fraudulent investment losses in FINRA arbitration.

Contact Zamansky LLC about a Junk Bond Breach of Fiduciary Duty Claim

We encourage investors whose non-investment grade bonds have defaulted or devalued to contact the securities fraud attorneys at Zamansky LLC. Our law firm investigates whether the securities broker or financial advisor breached her or his fiduciary duty in recommending and conducting the junk bond transaction. Your claims evaluation is risk-free and confidential and we respond to all inquiries within 24 hours.