Brokerage firms are huge entities with vast amounts of capital. If you imagine one, you probably have an image in your head of people in expensive suits at the top of skyscrapers in the most expensive and powerful cities in the world. In many cases, you wouldn’t be too far wrong with that image.
That kind of power and money can make it seem impossible to do anything if your brokerage firm takes advantage of you and misuses your money for bad investments. You are, after all, just a small time investor. Most likely, you don’t work anywhere near the top floor of a skyscraper in the center of New York, San Francisco, or some other major city. You may not even fully understand how your investments work. All you know is that your money was improperly invested and now you’re out a great deal of your money when you shouldn’t be.
There is a way to take on these massive entities, though, and there’s a recent, on-going case that illustrates how it works.
Essentially, in order to file claims against brokerage firms, attorneys need to be able to prove that the broker involved in the bad investments exposed their client to risks that the client never agreed to.
This current case involves a business called LJM Capital Preservation and Capital Growth. While the company paid lip service to modest investments that would provide capital appreciation and preservation no matter the market, the actual strategies of the business including very risky investments without having a significant preserve of capital in the case of a down market.
When things went badly, the business tanked, losing 80% of its value in a few days and costing investors hundreds of millions of dollars.
Many of those investors were small-time individuals and families that only discovered their money was at risk when they saw their losses. What this means is that their brokers were not explaining to them the risks of such an investment. They invested the money in a risky business and left their clients on the hook for the losses.
In essence, then, these investors felt like you might in such a situation: a small fish trying to take issue with the way a big shark treated them. But these small-time investors may have the means to take a bite out of the big shark all the same.
A good lawyer can take the circumstances of a case like LJM and prove that the broker is at fault for the losses because they didn’t explain the risks in the investment to their clients. And if the broker is at fault, the law says that the brokerage firm is also at fault.
Hopefully, you’re never in a position where you need to take your huge brokerage firm to court. You may get lucky and your broker may manage your portfolio well and avoid any foolish investments. If they do make mistakes with your money, though, it’s important to know that there are ways you can hold even these huge businesses accountable.