Breach of contract refers to the failure to perform any term of a contract, whether it is written or oral, and without a legitimate excuse. When it comes to the financial industry, many claims by investors against stockbrokers, investment advisers, and financial planners involve "breach of contract," and these arise when the broker fails to comply with the terms of their contract with the investor.
Financial matters are arguably one of the most important issues that anyone will have to deal with in their lifetime. There is no question that when making decisions regarding one's retirement, paying for their children's college education, purchasing a home, and making investments an investor relies heavily on his or her broker. Stockbrokers and other investment professionals play an integral role in their clients' lives, especially since most people don't have the time or training to manage their own financial affairs. Investors place a significant amount of trust and power in their financial advisors, and this power cannot be underestimated. Unfortunately, not all brokers operate with their clients' best interests in mind and they can be more concerned about their own financial motivation than that of their clients.
When an investor comes to a brokerage firm, they complete an application or other written agreement (including an arbitration agreement) and open a brokerage account with their stockbroker or other financial professional, and the broker or dealer that the broker represents. This written agreement is a legally binding contract which requires that the stockbroker and the firm comply with its terms. These agreements typically state that the stockbroker and the firm agree to comply with all applicable laws and regulations of the U.S. Securities and Exchange Commission (SEC), state laws, and the Financial Industry Regulatory Authority (FINRA). When the broker or the firm fails to comply with any of these rules, laws or regulations, then it is said that they breached their agreement with the client and if this breach caused the client to sustain losses (damages), then the broker or firm may be liable for the harm they caused for the client.
The majority of claims by investors against their brokers, investment advisors, and financial planners involve: 1) unsuitable recommendations, 2) unauthorized trading, 3) misrepresentations and omissions, 4) failure to execute trades, 5)churning, 6) negligence, 7 breach of fiduciary duty, 8) failure to supervise and 9) misappropriation.
It is never acceptable for a broker to make an unauthorized trade on behalf of their client. Whether the broker fails to consult with his or her client before making the trade in a nondiscretionary account, or whether the broker buys stocks on margin without authority or if they ignore the client's specific instructions with respect to the discretionary account, such unauthorized trading can result in claims for breach of contract or fraud depending on the facts of the case.
When a broker or firm breaches a contract, then the investor has a specific period of time for which they may file a lawsuit or arbitration claim. Most investor cases are heard in mandatory binding arbitration as a result of an arbitration clause buried in the new account agreement documents. In a FINRA arbitration claim, the FINRA rules provide a Claimant must file an arbitration claim within six years of the event or occurrence giving rise to the claim.
If an investor somehow can file a lawsuit rather than an arbitration claim, then the suit is governed by the statute of limitations. In the state of California the statute of limitations for breach of contract depends of the type of contract in question. Under Section 337 of the California Code of Civil Procedure, the statute of limitations for a written contract is four years. For oral contracts the statute of limitations is two years under Section 339(1). Often, brokerage firms will try to import statutes of limitations into arbitration claims to try to shorten the window in which a claim may be made.
Contact a California Securities Lawyer
If your broker or financial advisor violated the terms of your agreement or contract, then we urge you to contact a California securities attorney from The Law Offices of Jonathan W. Evans & Associates. We are extremely familiar with the rules and regulations set forth by the SEC, and FINRA. We can review your situation and determine if your broker has violated any such rules which in turn may give you the legal right to seek compensation for your losses. In practice since 1975, our founding attorney, Jonathan W. Evans focuses about 95% of his practice on securities arbitration matters, and he limits his representation to only public customers. To find out what your best course for legal actions is, please contact us today to schedule a consultation with an attorney from our firm.
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