Pump and Dump Schemes

Los Angeles Lawyer Experienced in Securities Law Claims

Investors put faith in their brokers to make judicious decisions about their investments and financial future. For many investors, a broker is necessary because the investor lacks the knowledge required to understand the financial markets. As a result of this disparity, brokers in California owe their clients a fiduciary duty to act in their best interests, taking into account an investor’s financial goals, aversion to risk, and long-term plans. Unfortunately, some brokers take advantage of their position and engage in conduct designed to pad their pockets at the expense of the investors’ financial wellbeing. Experienced Los Angeles securities law attorney Steve A. Buchwalter has provided legal counsel to investors throughout Southern California and is ready to help you assert your rights.

Asserting Your Rights as an Investor after a Pump and Dump Scheme

One common way that brokers abuse the trust of investors is through a pump and dump scheme. In these schemes, investors, mutual funds, and other financial services companies make false or misleading statements about an investment opportunity to encourage their clients to buy or sell.

Pump and dump schemes can be extremely damaging to investors. The federal government has even enacted legislation making them a criminal act and imposing severe penalties. One of the most common examples of pump and dump schemes involves a penny stock or stocks that are traded on the microcap market. Multiple parties conspire together to hype up or downplay the value of the investment, typically claiming that they have some inside tip that will purportedly help their investors make money or save money. In other cases, a broker will say that they have an infallible method of aggregating market and stock data to identify the best buys and sells for their clients.

Insiders of the company already have shares. When the broker’s clients start buying shares, the price of the shares usually increase. Once the shares hit a price that makes it advantageous to sell at a large profit, the insiders then sell and the price of the stock plummets. The pump in pump and dump occurs when the price is going up and dump is when the insiders sell taking their profits and the stock plummets.

A broker in California owes his or her clients a duty to act with the investor’s best interests consistently in mind and to provide candid and complete advice about the implications of certain investment opportunities and decisions. As a result, a broker who engages in fraud or deceit or who intentionally misleads an investor client has breached the duty of care. This includes not only affirmative falsehoods about investment opportunities or related matters, but also material omissions. If the broker’s conduct is willful, malicious, or wanton, the plaintiff may be entitled to recover punitive damages from the broker. This category of damages is designed to penalize a defendant while also serving as a deterrent to other brokers.

If an investor can prove that a broker has breached the duty of care, the investor may be entitled to the difference between the actual value of his or her account after the negligent or reckless act and the projected value of his or her account had the broker acted with due care and according to his or her fiduciary duty. Because of the complexity involved with investment funds and opportunities, it is often necessary to consult an expert witness to determine what your account may have been worth without the negligent or reckless conduct.

Seek Guidance from a Securities Law Attorney in Los Angeles

If you have been burned by your broker, you may be entitled to compensation. Los Angeles securities law lawyer Steve A. Buchwalter provides his clients with knowledgeable legal counsel. We offer a free consultation to help you learn more about your situation and the legal options that may be available to you. Broker fraud attorney Steve A. Buchwalter proudly serves investors throughout Southern California, including in Newport Beach, Santa Barbara, Irvine, Pasadena, Beverly Hills, and other cities in Orange, Los Angeles, and Ventura Counties. Call us or contact us online to set up your appointment.