Mistakes made by even well-intentioned financial advisers, stock brokers, promoters, solicitors, and others who give investment advice or sell financial products sometimes come to light when markets are volatile or when a bull market ends. Volatility and bear markets can make it difficult to conceal fraud and other illegal acts. Lawyers who represent investors in Oregon, Washington, Alaska, and in other states, along with investors in FINRA arbitrations, often consider several potential claims when evaluating a case.
1. States Securities Laws
Investors sometimes have claims under state securities laws. State securities laws may provide protection to not only state residents but also when investors or investments have a connection to the state. State securities laws, sometimes called Blue Sky Laws, often have two broad categories of claims—technical claims and claims involving misrepresentation or omission.
Common technical claims include sales by an unregistered salesperson and sales of unregistered securities. For example, in general, it is a violation of Oregon law for an unregistered salesperson to sell a security. Unless an exemption applies, it is also generally a violation of the Oregon securities laws to sell an unregistered security. The Oregon securities laws can be found in the Oregon Revised Statutes at Chapter 59.
The second broad category of state securities law claims involve misrepresentation or omission. Common misrepresentations and omissions include inadequate risk disclosures, misleading projections or reports about financial performance, false statements about business operations, and incomplete or false information about fees.
The plaintiff or claimant should always consider who is potentially liable for any misrepresentation or omission. In securities fraud cases under Oregon law, for example, the seller is potentially liable as are officers, directors, managing members, control persons, and anyone who participates or materially aides in the sale of a security.
2. Breach of Contract
For some investors, the strongest claim is for breach of contract. When a promissory note or other contractual right to payment is at issue and the debtor does not pay, a breach of contract claim may be available. A missed payment or other breach may also give the creditor the right to accelerate payment on the entire debt.
Pay close attention to the language of the contract. Contracts sometimes include an arbitration provision, seek to limit the time period within which a person must bring a claim, apply the law of a particular jurisdiction, and include other provisions that determine the parties’ rights and obligations.
3. Elder Abuse
Many states have laws designed to protect people based on age or disability. In Oregon, a defrauded investor who was 65 years of age or older at the time he or she invested should consider a claim for financial elder abuse. In investor cases, these claims typically involve the wrongful taking of money. A plaintiff who prevails on a financial elder abuse claim under Oregon law is entitled to treble damages and attorney fees. Oregon’s elder abuse statute is available in the Oregon Revised Statutes at Chapter 124.
4. Suitability and Best Interest
Unsuitability and best interest claims arise when a broker makes an investment that is inconsistent with an investor’s goals or investment profile. The broker should consider the investor’s age, risk-tolerance, financial goals, net worth, and other factors when recommending an investment. When an investment recommendation is out of line with these factors, the investment might be unsuitable or not in the customer’s best interest. For example, it might be unsuitable for a retired investor who plans to live off interest from fixed income investments to have a significant percentage of his or her assets invested in a volatile, equity options fund.
For more on the best interest requirement, see our blog post from July 1, 2020, available here.
This is not a complete list of potential claims an investor who is the victim of fraud or other financial abuse should consider. Other common claims include negligence, breach of fiduciary duty, common law fraud, claims under a state’s unlawful trade practices act, churning, and unauthorized trading. Whether a claim is available—and whether it makes strategic sense to make any given claim—depends on the specific facts of the case and the law that applies.