Complex Investment Related Litigation In State & Federal Court
Investment-related litigation is complex by nature, because the investment field itself is complex. Investing plays a crucial role in the economy of America and all other advanced countries. Business interests of all kinds need capital, and the wider the pool for obtaining it, the more capital that can be raised. Citizens with cash to invest know that putting that cash into the securities issued by businesses offers the possibility of higher rewards than can be had from saving the money in banks, and that the reason for the potentially higher reward is that securities investments carry higher risks.
Since individual investors can’t realistically expect to deal directly with the businesses seeking investments, the field is rife with middlemen that we call brokers, agents, advisors, dealers, and so on. And the stakes are high for all the players, with billions of dollars flowing toward issuers in exchange for paper promises.
The vast majority of investors have to decide which paper promises are worth the risk of their money based on the representations made by others as to the health and value of companies, the likelihood of success of new ventures, the probability that loans will be repaid, and the like. There is a mismatch in knowledge between issuers and investors, between issuers and middlemen, and between middlemen and investors, and considerable financial incentive to misuse that information advantage.
As a result, investment-related litigation almost always involves:
- The representations made by the issuers of securities to both middlemen and investors.
- The representations made by middlemen (brokers, advisors, etc.) to investors.
- The efforts made by investors and middlemen to discover available information about the investment (due diligence).
Each of these issues delves into highly subjective questions of what the people knew and should have known. Proving those points is often a painstaking, lengthy process requiring collection and analysis of large quantities of evidence, from stock prospectuses to handwritten notes of meetings between investors and middlemen.
Increasing Complexity of Securities and Investment Industry
Investing is, in the 21st century, exponentially more complex than it was just a few decades ago. Banks, businesses, and dealers develop new “investment products” frequently, many of which are so intricate that few people outside of the investing world really understand what they are and what risks they carry. In fact, many people inside the industry have only a hazy grasp of the nature of some of these new investments, like:
- Collateralized debt obligations
- Credit default swaps
As the “exotic” investments multiply, new kinds of businesses develop to deal in, and with, them. Examples of recent entries into the investment field include:
- Swap execution facilities (SEFs)
- Financial derivative trading companies
Regulatory Bodies Abound
Not surprisingly, given the huge amounts of money at stake and the importance of maintaining public confidence in the fairness of the investing field, there are numerous regulatory bodies which try to keep self-dealing, fraud, etc. to a minimum. These include:
- The Securities and Exchange Commission (SEC)
- The Financial Industry Regulatory Authority (FINRA)
- The National Futures Association (NFA)
- The Commodity Futures Trading Commission (CFTC)
- Florida’s Office of Financial Regulation (OFR)
The act of transferring investment products takes place on numerous exchanges that have their own rules and their own interests, including the New York Stock Exchange, NASDAQ, and the Chicago Board of Trade.
Laws Governing Investment-Related Litigation
The basic elements of common law apply to investment-related litigation, as do a wide array of federal and state laws that address aspects of investment activity. Some of these laws are widely known, others are not.
Florida has enacted the Florida Securities and Investor Protection Act. The most common federal statutes that come into play in investment-related litigation include:
- The Securities Act of 1933
- The Securities Exchange Act of 1934
- The Trust Indenture Act of 1939
- The Investment Company Act of 1940
- The Investments Advisors Act of 1940
- The Sarbanes-Oxley Act of 2002
- The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
- The Jumpstart Our Business Startups Act of 2012
Shareholder Derivative Suits
This type of litigation is especially complex. Shareholder derivative suits are essentially claims by one or more shareholders of a corporation, acting as agents of the corporation itself, against a third party. Typically the third party is an officer of the corporation who, the suit claims, favored his own interests over those of the corporation, financially harming the corporation and all its owners.
Get Help Now
As an aggrieved investor, how do you know whether you have a legal claim on which you can sue? Who do you sue? On what basis, and pursuant to what statute? In what court? For what damages? How do you go about getting the frequently mountainous amount of evidence needed to prove your claim?
Todd A. Zuckerbrod can help you sort it all out efficiently. If you do have a claim, we will pursue it vigorously to a fair settlement or a court verdict. We handle state court cases and federal court cases (including Multi-District cases), as well as arbitrations when required or desirable.
Todd A. Zuckerbrod has worked in the securities industry for nearly 30 years, including regulatory work at the New York Stock Exchange, as in-house counsel with Merrill Lynch, as outside counsel with the law firm of Greenberg Traurig and as the general counsel of a brokerage firm. Call today for a free consultation.