Closed End Funds

Experienced Securities Fraud Attorney Serving Los Angeles Investors

When you consult a broker, you expect him to render advice that will help you meet your financial goals and protect your interests. Since so many investors lack the savvy and experience that brokers have, they often place their faith in their broker’s recommendations and trust that the broker will put the investor’s interests before his own. At the Law Office of Steve A. Buchwalter, we have seen many situations in which a broker takes advantage of an investor for his own financial gain or handles the investor’s accounts in a negligent manner, resulting in serious financial losses. Los Angeles securities fraud lawyer Steve A. Buchwalter is ready to help you seek the remedies that you deserve after being burned by your broker.

Understanding Closed End Funds and How Broker Negligence May Affect Them

A closed end fund is a form of public traded security that amasses a fixed sum of money from investors through an initial public offering or IPO. When the shares are sold through an IPO, they are generally sold at a premium over the value. The premium almost always declines after the IPO. Only a certain amount of the shares is sold through the closed end fund. Then, the funds are listed and traded exactly like stock shares on an exchange. The investment objectives, strategies, and portfolios may differ depending on the closed end fund. This method may also be used for a closed end mutual fund. There are many risks associated with a closed end fund, which a broker is required to disclose to an investor client. The management strategies adopted for these funds are not always clearly disclosed, and the management strategy may matter greatly when it comes to fluctuations in the market. If, for example, the fund uses debt as part of its strategy, the shares may experience more volatility, potentially exposing investors to greater risk. Also, investors are often unaware that a certain portion of the money that they invest will be used to pay brokers’ fees and expenses resulting in higher management fees than typical mutual funds or Exchange Traded Funds.

Further, unlike mutual funds which are bought and sold based on the value of the underlying assets (called Net Asset Value, or “NAV), closed end funds are traded based on supply and demand. As such, when you buy or sell a closed end fund, you may be buying the fund for more than its NAV or selling it for less than its NAV.

Due to the disparity in knowledge and expertise between a broker and an investor, the law places the highest burden of care on brokers, viewing them as fiduciaries. This means that a broker must be candid with an investor, disclose the possible risks and outcomes with each investment opportunity or strategy, and put the client’s financial gain before his own. If the broker fails to meet this standard of care, either by handling the client’s accounts negligently or by intentionally engaging in fraud or misrepresentation to make more money, the investor client may sue the broker and his brokerage firm for damages. If the investor is successful in showing that the broker was negligent or reckless, he may be entitled to damages that reflect the difference between what his account would have been worth without the negligence and the actual value of the account.

Contact a Dedicated Securities Fraud Lawyer in Los Angeles

Few things are more devastating than realizing that your financial security has been jeopardized, perhaps permanently. At the Law Office of Steve A. Buchwalter, our team of legal professionals has decades of combined experience working in different capacities in the securities field. As a result, we have the knowledge and perspective that it takes to ensure that you put a strong case forward for the compensation that you deserve from a negligent broker. Los Angeles securities fraud attorney Steve A. Buchwalter represents investors in Beverly Hills, Pasadena, Newport Beach, Irvine, and Santa Barbara, as well as other cities in Los Angeles, Ventura, and Orange Counties. Call us at (818) 501-8987 or contact us online to set up a free appointment with a broker negligence attorney.