Governing Investment Management

Without investment management laws, there would be no way to protect investors from misconduct and negligence on the part of brokers and brokerage firms. Thankfully, after the stock market crash of 1929, the U.S. enacted a series of laws to increase transparency and shield investors from fraud.

If you think you’ve been the victim of investment fraud or misconduct, or if your broker has been putting their own profits ahead of your own, contact us for a free, no-obligation case review. You could be owed compensation for losses.

U.S. Laws Governing Investment Management

There are four core laws, passed between 1933 and 1940, which form the backbone of investment regulation in America:

  • The Securities Act (1933): To curb investment fraud, this act includes measures to boost transparency, such as requiring companies to provide clear, accurate, and up-to-date information to investors.
  • The Securities Exchange Act (1934): This act created the Securities and Exchange Commission (SEC), which still oversees the stock market today. The SEA also established guidelines for the secondary exchange of stocks and bonds.
  • The Investment Advisers Act (1940): The Investment Advisers Act sets the duties that investment advisers must perform, including putting their client’s interest first at all times. It also includes the requirements for registering as an adviser.
  • The Investment Company Act (1940): This bill set the rules for how investment companies have to operate with regard to fiduciary duties, financial disclosures, filing requirements, and service charges, among other aspects of their business.

Common Types of Investment Misconduct

Despite the passage of these bills, investment misconduct unfortunately is still quite common. Here are some examples of misconduct, fraud, and negligence to watch out for:

  • Churning: Most brokers receive a commission fee every time their client makes a trade, so some brokers encourage their clients to make excessive trades in order to generate more commissions. This is known as “churning,” and it’s rarely in the client’s best interest, which is why it could be a violation of the broker’s fiduciary duty.
  • Unsuitability: This is another example of a broker or brokerage firm failing to act in a client’s best interest. Brokers are obligated to know what a client’s financial goals are, as well as the amount of risk the client is willing to take. When the broker encourages trades that go against these goals, or that exceed this level of risk, the client may be able to file a lawsuit seeking compensation for losses.
  • Mutual fund, bond, or annuity switching: This is yet another case of a broker prioritizing their own commission fees over the financial interests of their client, by advising that the client sell one mutual fund or group of bonds only to then advise that they buy a very similar one. This often does nothing to further the client’s goals, but it does generate more money in commissions for the broker.
  • Breach of fiduciary duty: Brokers aren’t just expected to act in their clients’ best interest—they are legally required to do so. It’s what’s known as their fiduciary duty. That’s why tactics such as churning and bond switching are not only immoral but illegal, making the broker vulnerable to a lawsuit filed by the client.
  • Over-concentration: Even novice investors know that it’s crucial to diversify your investments in order to avoid suffering massive losses because of one failing company or sector. When a broker over-concentrates a client’s money in too few companies or industries, and the client suffers losses as a result, the client may be able to pursue legal action.
  • Unauthorized trading: Most often, a broker or brokerage firm isn’t allowed to make a trade for a client without the client’s express permission. Some unauthorized trades cross the line from unwise to unlawful.

File an Investment Fraud Lawsuit

If you or a loved one have suffered financial losses because a broker failed to uphold their fiduciary duty, acted negligently or deceptively, or seemed to put their own commission fees ahead of your financial security, you could be owed compensation. Morgan & Morgan has been fighting for people who’ve been wronged for over 30 years; during that time, we’ve recovered $10billion for our clients. We have experienced attorneys across the country who know how to win. Best of all, we get paid only if we successfully resolve your case.

To see how one of our investment fraud attorneys may be able to help you, contact us today for a free consultation.

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