Securities Fraud / Business Lawyer Colorado

Leading. The Oldest Ploy.

Perhaps the granddaddy of them all is the fraudulent securities practice known as "leading". The broker talks you into buying a huge chunk of stock in a particular company. Then, before placing your order, he buys a little for himself. When your gigantic order hits, the shares go up and he makes a tidy little profit for himself. This has long been illegal. But cross-leading and other types of leading transactions have cropped up over the years, including derivative, option and other types of leading. For example, some stocks can be moved by a jump in a related stock. The leading purchase can be structured so that the broker secretly buys options on company x before placing your big order for company y, knowing that x always leaps if y goes up. If you believe your broker or financial adviser is engaging in leading, call a securities lawyer at our Denver branch.

Churning. Why They Do It.

Investment advisors and brokers churn your account (buy and sell securities with unnecessary and inappropriate frequency) for the same reason: Commissions. In the case of a broker, the motive is rather obvious. They get paid a commission for each trade. Therefore, the more trades, the more they make. But with investment advisors, the motive is harder to spot. A good securities lawyer knows, however, that most investment advisers use broker-dealers to process their clients' trades. The adviser uses that same broker-dealer for his own personal trades. Interestingly, the commission rate they charge him is lower if he trades frequently. If he churns your account, he can lower his cost of doing his own trades. Also, most advisers borrow money from the broker-dealer to purchase stock on margin. If the adviser trades frequently, the broker-dealer will lower the interest rate the adviser pays on this loan, since the broker-dealer can make good money from the frequent trading. So the more the adviser trades your account, the lower his borrowing costs become. These conflicts of interest are at the heart of the forbidden practice known as 'churning'. If you suspect that your investment adviser or broker-dealer is churning your account, call us.

Wash Sales. Creating Hype to Fool You.

When a stock is 'hot', everybody is buying it, and the daily trading volume for each stock is easy to find; it is published up to the minute. Many investors use the trading volume statistic to help them find hot stocks, or locate companies with huge interest. Trading stocks on high volume is a specialty of the so-called momentum investor. Knowing this phenomenon, unscrupulous advisers or brokers can simulate the appearance of high volume trading in a stock by simultaneously purchasing AND selling huge blocks of the same stock over and over again, creating the illusion of great momentum and huge interest. This helps them hype the stock so the shares they already personally own gain in value, for example. Why would a broker do that? Sometimes the broker owns quite a bit of one company's stock, usually because they bought vast blocks of it from the company at a discount in order to sell it for a profit. If the stock simply stinks, it becomes hard to sell, and the broker-dealer, or underwriter, may engage in illicit wash sales in order to generate a feeling of activity or stir up rumors that something great is about to happen to the stock. When the price rises on the hype, the broker-dealer can then sell the shares at a higher price. It is hard for individual investors to catch a broker at this type of malfeasance, but if you believe your broker is placing wash sales and your stock has been hurt, call us today. We would like to hear from you.

Material Non-Public Information: Insider Trading

Always popular and always famous, this type of fraud is at the heart of many notorious security fraud cases, and still surfaces dramatically from time to time. Witness the recent Galleon hedge fund prosecution and you can easily see how an investment adviser can make quite a fortune breaking securities laws in this particular way. If you have been injured by someone who has moved the price of a stock by trading on material non-public information, call us.

The "All Large Cap Equities" Portfolio that Isn't...

A new type of fraud, one becoming more and more common, involves financial advisers signing up investors to their "All Mid to Large Cap Equities" portfolio, explaining to them that this is safer than options trading and derivatives. But the adviser then buys common shares of companies which are nothing but baskets of options and derivatives. There is no real company there, just a pot of futures/option contracts which often are leveraged with double or triple debt. The volatility and risk of loss are every bit as high as the dangerous options and derivatives trading they promised to keep you away from. When you lose all your money, they claim that they invested exactly the way you authorized.

Contact a Denver Business Lawyer at Williams Law, P.C. for legal counsel and litigation representation.