Securities Lawyers Blog
Recently, the law office of Gana Weinstein LLP filed a claim (Complaint) on behalf of its client against Fidelity Brokerage Services (Fidelity) alleging that Fidelity was negligent when one of its registered representatives made an unsuitable recommendation to the client. The client purchased a stock in the company Lakeland Industries (Ticker Symbol: LAKE) believing that the stock was overvalued and initiated a short position to attempt to profit from the stock’s decline.
A short position allows an investor to sell an investment that the investor does not actually possess. Instead, the investor receives the cash proceeds from the sale and then is obligated, at a future date, to buy back the shares borrowed. If the value of the stock declines over time then the investor can buy back the stock at a cheaper price than what the investor sold the stock for, making a profit on the difference. Conversely, if the stock’s value increases the investor will have to buy back the stock at a higher value and would lose money.
From October 1, 2014, through October 10, 2014, the client sold short 10,100 shares of LAKE in his Fidelity account. Over the next few days the shares of LAKE increased causing margin calls in the client’s account. The client alleged that he had already added funds to his account to cover previous margin calls. The client wanted to hold the LAKE position and made it clear to Fidelity that he would continue to add funds to cover any margin calls to avoid having his LAKE position liquidated by Fidelity.
On October 13, 2014, the client called Fidelity after receiving a message that his account needed attention. However, according to the complaint Fidelity told the client that he did not need to transfer any additional funds and that the funds previously transferred were satisfactory. As a cause and the client took no action concerning his account and ended the call.
Shortly thereafter, Fidelity sent the client a series of text messages stating that they were covering a portion of his LAKE position and buying shares in his account. Fidelity’s misconduct ultimately caused the client to be forced out of a portion of his LAKE position causing investment losses.
The attorneys at Gana Weinstein LLP are experienced in handling claims involving unsuitable recommendations. Contact us today if you believe that you have lost money due to your broker’s unsuitable recommendation. Our consultations are free of charge and you do not pay unless you recover.