Broker Misrepresentation

This week we will start a series of articles examining some of the most common forms of securities fraud. The first type of investment fraud we will discuss is Misrepresentation. Misrepresentation is a broad term that encompasses almost all aspects of securities fraud. Misrepresentation is the false representation of facts and/or the omission of facts to a client, in order to influence the client to act. As you can imagine, almost all securities fraud cases fit this build and occurrences are much more common than you think. Just scan through the business section of the newspaper and you can find numerous accounts of misrepresentation.

A recent article in The Wall Street Journal outlines how the co-founder of Gryphon Financial defrauded 5,000 people of $20 million in fees, selling “expert advice” from two billionaires, Michael Warren and Ken Masake, who used to work with Goldman Sachs and Lehman Brothers. Not only did Warren and Masake not work for Goldman and Lehman, they didn’t even exist! Fictitious characters made up to solicit investor’s money. Needless to say, the CEO of Gryphon Financial received eight years in prison and the investors he defrauded are pursuing legal avenues to recoup their funds.

While this is an obvious case of broker misrepresentation not all cases are plain to see. In order to avoid being a victim make sure the investment broker you hired is providing you with all the facts of an investment and, independently verify the information before you act. Knowledge is the best defense against securities fraud. Do your own research and check your statements often. If you think you have been a victim of broker misrepresentation, you have rights. The Securities and Exchange Act of 1934, Section 10, Regulation of the Use of Manipulative and Deceptive Devices, offers protection to the investor against broker misrepresentation. The law states:

It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities exchange—…

(b) To use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, or any securities-based swap agreement, any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.[1]

This law protects your rights against misrepresentation and through securities arbitration or litigation, your money can be restored.

S. David Anton is a member of Public Investors Arbitration Bar Association (PIABA) the preeminent national wide organization of attorneys who represent brokerage firm customers in disputes with the industry.  He is also a Certified Securities Arbitrator with the Financial Industry Regulatory Authority (FINRA), formerly NASD and resolves disputes between investors and stockbrokers, investment advisors and their firms. He has been practicing law since 1985 and representing brokerage firm customers since 1999.  He is a Tampa, Florida based attorney who can handle securities arbitrations anywhere in the U.S.


[1] Securities and Exchange Act of 1934, Sec.10(b), pp.88-9;