Stockbroker fraud is a hot topic these days. Thousands of investors make claims each year about investment scams and Ponzi schemes. In many cases, when the dust settles, the only “deep pocket” is the brokerage firm that facilitated the sale of the investment. Other times, registered reps simply don’t take the time to know their customer and make suitable recommendations. In both cases, the brokerage firm can often be held liable for the losses. Sometimes, however, even the brokerage firm goes under leaving investors with nothing.
According to a published report in InvestmentNews, Allied Beacon Partners told regulators that it no longer had sufficient capital to continue operations. The SEC requires brokerage firms to maintain minimum capital requirements. When firms fall below those requirements they can’t accept new business. (Stockbrokers can still help clients liquidate their investments, however.)
Allied’s woes may have been caused by a predecessor firm called Community Bankers Securities. The firm suffered a $1.6 million arbitration award against it last week by the Financial Industry Regulatory Authority (FINRA). The arbitration award stems from a customer who claimed that his broker sold him a private placement investment without conducting proper due diligence. When the investment turned out to be a scam, the customer turned on the broker.
Improper due diligence is a common example of stockbroker fraud. Many small and medium size brokerage firms turned to selling private placements in the hopes of making larger commissions. Unfortunately, in many instances there was no proper investigation of the investments being offered.
Although no registered representative or investment adviser can guaranty an investment, brokers have the responsibility to know their customers, understand their risk tolerance and financial position, only recommend suitable investments and conduct reasonable due diligence on the products being recommended. Failure to take any one of these steps can result in a claim for stockbroker fraud.
A review of FINRA’s arbitration records show only 1 award against the company but at $1.6 million, evidently it was large enough to break the bank. The fate of the 200 brokers working at Allied Beacon is unclear. There is a chance that the firm could be acquired by another firm or receive enough capital to pay the award and resume full operations.
The lesson here is to make sure that your stockbroker or investment firm is large enough and has sufficient capital to pay claims. We have seen several brokerage firms go out of business after selling bad private placement or Tenants in Common (TIC) deals. Unfortunately, when those deals go under bad, often the only ones worth pursuing for losses are the brokers. For customers of Allied Beacon who may have claims, the future is uncertain.
If you lost $100,000 or more because of a stockbroker, investment adviser or other financial professional, give us a call. The stockbroker fraud lawyers at Mahany & Ertl have helped many investors get back their hard earned money. We also take cases involving other frauds including legal and accounting malpractice and Ponzi schemes. Most cases can be handled on a contingent fee basis meaning no legal fees unless we recover money for you.
Mahany & Ertl – America’s Fraud Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine; Minneapolis, Minnesota and San Francisco, California. Fraud recovery available in many jurisdictions.
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Post by Brian Mahany