Stockbroker negligence may take the form of failure to execute an order, executing the wrong order, the failure to transfer funds, the failure to exercise options, or simply errors. However, most often stockbroker negligence includes the negligent provision of investment advice.
At common law, negligence is a breach of duty, or standard of care, that is the proximate cause or the cause in fact of damages. As Justice Cardozo once famously wrote: “danger invites rescue.” In the context of stockbroker negligence, superior, or purportedly superior, knowledge, skill, training or expertise, invites “confidence.” Investors have the right to rely upon their investment professionals, and these same professionals and their firms owe their customers certain duties or standards of care.
These standards of care, or arguably, the minimum standard of care as set forth in the various self-regulatory rules and regulations under which stockbrokers and investment professionals must conduct themselves. For example, under these rules, a stockbroker may only recommend a particular security or investment strategy if they have conducted due diligence, and are sufficiently informed and knowledgeable about the risks and characteristics of a particular security or investment strategy. A stockbroker has the duty to read prospectuses or offering materials, new stories or other readily available information, prior to recommending that particular security to a customer. The failure to conduct product-specific due diligence or suitability, i.e. is the subject investment suitable for any customer, is a breach of that duty and is negligence or stockbroker negligence.
Similarly, securities broker-dealers have a duty to supervise the conduct and activities of their registered representatives. If a stockbroker engages in wrongful conduct, including theft, misappropriation, selling away, deceptive sales practices, or other forms of misconduct, and the broker-dealer fails to reasonably detect or prevent such misconduct, as may be required by self-regulatory rules, and which results in damages to the customer, the broker-dealer may be held responsible under a theory of negligence.
Brokerage Negligence Attorneys
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