Misrepresentation & Omissions Advice from Expert Attorney

There is no guarantee of return when investing in securities; therefore, you are liable to suffer a loss due to the vagaries of the market. That is why brokers and fiduciary advisors guide new investors to mitigate their risks. However, if you lose a substantial portion of your finances in a low-risk investment, you should investigate the possibility of misrepresentation & omissions. 

Get in touch with our office today for a free consultation, or call us at (202)444-4222.

What is a Misrepresentation or Omission of Material Facts?

Literally, misrepresentation or omission is a falsification of material fact by a party in a deal to manipulate the other party into agreeing to a contract. In securities trading, It is classified as a Prohibited Conduct by FINRA. It means a broker or firm misrepresents materials and risks involved in an investment when recommending it to an investor.

Sometimes, the broker omits information that might discourage the investor from authorizing the investment.

Material facts may include the following;

  • Risk of investing in the security
  • Charges or fees involved
  • Company financial information
  • Technical or analytical information, such as bond ratings.

Types of Misrepresentation

  • Innocent Misrepresentation: This is when the broker is unaware that the available stock information is false despite thorough evaluation.
  • Negligent misrepresentation: A broker or advisor may recommend a stock without due diligence. This is a violation of fiduciary duty.
  • Fraudulent misrepresentation: The broker or advisor, in this case, intentionally induce the investor to purchase or sell the stock for personal gain.

FINRA’s Anti-fraud Rule

The FINRA 2020 Rule, also known as FINRA’s anti-fraud regulation, prohibits brokerage firms and stockbrokers from distorting material facts while persuading an investor to buy or sell securities. The Rule reads, “No member shall effect any transaction in, or induce the purchase or sale of, any security by means of any manipulative, deceptive or other fraudulent device or contrivance.” Such behavior is also unethical and in violation of FINRA Rule 2010.

The SEC has also determined that a company or broker that intentionally or recklessly misleads an investor in connection with the sale or purchase of an investment violates Section 10(b) of the Exchange Act and Rule 10b-5, as well as the antifraud provisions of the securities laws.

How to Prove Misrepresentation and Omission

There are three important elements to establish a misrepresentation and omission case:

Material Information

The information must be material to be considered possible to be misrepresented or omitted. For information to be material, a reasonable person should deem it important to aid the assessment of security before deciding to transact.

Omitting Information

The omission of a material fact has to be intentional from the broker’s end for it to be considered securities fraud. Fiduciary advisors may also be accused of omission if they fail to conduct due diligence before investing a customer’s money.

Misrepresenting Information

Misrepresenting statements that are, or purport to be, factual or represent the truth about securities can be considered fraud.

Meanwhile, personal opinions, predictions, or exaggerations are not prone to misrepresentation.

What to do if you notice misrepresentation or omission

If you suspect your broker or advisor may have employed misrepresentation or omission, causing you investment losses, S.A. Law Group securities lawyers can help you recover your losses in a FINRA arbitration claim. Contact us or call us today at (202)444-4222 for a free consultation to evaluate the chance of your case.

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