Valenti Hanley PLLC

Legal Issues Blog

Do you have a case for suing your financial planner?

Kentucky has certain licensing guidelines in place to reduce the chance of a consumer being taken advantage of by their financial advisor. They're often not effective in stopping your money manager if they engage in sneaky tactics though. Fortunately, there are legal remedies that you can pursue against your financial planner if they don't uphold their responsibilities to you.

Managing someone's investment portfolio carries with it certain inherent risks. Financial advisors sometimes have to take chances when choosing stocks to purchase or sell. While they may try to make informed choices, their decisions don't always yield positive results. It's possible for the money manager managing the trade of your stocks and bonds to squander your money without them intending to do so.

Investing is always a risk

When you decide to invest your money, it is always a risk. Anyone who tells you otherwise is probably running some sort of scam or trying to build up a false confidence. The risk may be low, but it is always there.

One example of risk is the market risk itself. The market conditions alone can cause the value of your investments to rise or fall. If there is a recession and no one can afford to buy homes, for instance, then real estate investments may actually decline in value, no matter how solid they looked when you bought them.

What qualifies as an unsuitable investment?

Trusting some of your finances to a broker or advisor is a significant decision. You're handing over a piece of your potential future to another person, someone you believe has the knowledge to act only in your best interests. Unfortunately, things don't always turn out that way.

If a broker or advisor makes what is called an "unsuitable" recommendation to their customer, and it results in a negative outcome, that investment professional may be liable. But what constitutes unsuitability?

Sotheby's hit with multiple shareholder lawsuits over sale

In less than a month, four shareholder lawsuits have been filed against Sotheby's. At issue is the famed auction house's acquisition deal with Patrick Drahi. The 55-year-old Drahi, known as a telecom mogul, is president of Altice, the French telecom group. In June, it was announced that he was planning to purchase Sotheby's for $3.7 billion and turn it into a private company. Sotheby's has been a publicly traded company for over three decades.

The lawsuits all name a number of Sotheby's executives and board members as well as the company itself as defendants. They assert that the information provided in Sotheby's proxy statement contained "materially incomplete and misleading" information on the deal, as the most recent suit states, "to convince Sotheby's shareholders to vote in favor of the Proposed Transaction." This would violate Securities and Exchange Commission (SEC) laws.

How do you know it's time to change financial advisers?

Most people dread the thought of leaving their financial adviser. Even if you don't have a particularly good relationship with them, they may have been handling your investments and other assets for years. Moving everything over to another firm can be difficult and time-consuming. You may also just not want the confrontation.

However, there are some red flags that you shouldn't ignore. They can be signs that your adviser is less than honest and maybe even acting illegally. Let's look at a few.

What is the Securities Act of 1933?

The Securities Act of 1933 was created to protect investors after the 1929 stock market crash. The point of this legislation was to make sure that financial statements would be more transparent, making it possible for investors to make more informed decisions. Additionally, laws were passed to prevent fraudulent acts and misrepresentation in the securities market.

The legislation began requiring companies to register with the Securities and Exchange Commission (SEC). This move guaranteed that all investors would receive a prospectus and registration statement.

How many U.S. residents invest in the stock market?

You hear a lot about the stock market on the news or when you bring up financial topics like estate planning, retirement planning or just increasing your personal wealth. But have you ever wondered, for all of the people who seem to have a lot of opinions about investing, how many of them are actually putting their money into stocks?

It's a good question, and it appears that about 52% of Americans own stock at this time. Some financial experts are surprised it is not higher, considering the way that the stock market has been soaring since the drop in 2009. Those who invested then have made some serious money, but it's still just barely over half of the people in the country.

What exactly is regulatory work and what's the role of the state?

The U.S. Securities and Exchange Commission (SEC) is responsible for supervising the enforcement of federal securities laws. Kentucky and every other state in the country have their respective agencies that perform similar duties as well. They each regulate the sale or exchange of stocks, bonds and other financial instruments that can be traded for a monetary value within their borders. The work of both of these agencies is referred to as regulatory work.

State regulators are generally only authorized by the federal government to supervise investments of $25 million or less. Any amounts higher than that are handled by federal authorities.

Will new SEC regulations protect investors from churning?

How do you know when a financial advisor has your best interest at heart? It’s a question worth considering, especially as you draw near retirement and want to maximize the value of your portfolio.

It’s also a question that new SEC rules should help you answer. They help clarify the distinction between financial advisors and broker-dealers. They also require broker-dealers to file disclosures and act in their clients’ best interests. But as Forbes reports, these new rules aren’t perfect, largely because they don’t clearly define your “best interests.”

The problem with dividend selling

One potential issue you could run into with your broker is if they tell you to quickly buy a specific stock because the company is about to pay out a dividend on that stock. Brokers will sometimes act as if this gives you a fast, easy way to make money, or they'll even present it as an upcoming gain -- saying you can get a fast 5% return, for instance.

The practice of dividend selling typically only benefits the broker. They get a commission because of the sale.

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