Overconcentration Explained by a New York Investment Fraud Lawyer
Diversification of a portfolio can significantly reduce risks for investors. As a result, most financial experts recommend investing in a mix of different types of securities and a mix of financial products.
A recommendation is not a rule, and there may be times when a portfolio will be concentrated in a specific sector or specific type of investment. This can be a legitimate investment strategy as long as there is some sound basis for making the investment choices. However, overconcentration can also result in investment advisors and brokerage firms becoming responsible to clients for breach of fiduciary duty or broker misconduct. In certain limited situations, overconcentration can even cross the line into criminal investment fraud.
If you are being accused of overconcentration, your clients may be suing and you may be facing SEC action. You may be under investigation; your job may be at risk; your assets and accounts may be frozen; and you may be facing indictment or arrest. You need to be proactive and aggressive in dealing with your legal problems. Let an experienced New York City investment fraud lawyer at Bukh Law Firm, PLLC be there for you. We represent financial professionals and brokerages who are facing legal actions and who need experienced and dedicated legal advocates on their side.
What is Overconcentration?
Overconcentration involves placing undue emphasis on a particular type of investment or putting too much of an investment portfolio into a single security. In a broker-managed account, brokers are expected to make sound financial decisions for clients with the goal of earning returns and protecting against losses. If a broker invests too significant a portion of a client’s account in a particular type of investment or a particular stock and losses result, the broker may be accused of overconcentration.
Brokers who are entrusted to manage money have the opportunity to use their judgment and cannot be found legally liable for losses from overconcentration in all situations. The key is whether the broker breached a duty owed to clients and/or had a legitimate and sound basis for making the investment choices.
The question of whether overconcentration occurred is a subjective one, and it can be difficult to determine whether the decision to invest heavily in a particular security or type of securities was justified. Those accused of overconcentration can avoid being found legally responsible for their decisions if they have a good investment fraud lawyer who can help them to make a compelling case showing there is no proof of wrongdoing.
Is Overconcentration a Crime?
Overconcentration typically results in civil action. Brokers can face the potential for the loss of their license to sell securities. The Securities and Exchange Commission or Financial Industry Regulatory Authority (FINRA) can pursue disciplinary actions if they suspect improper overconcentration. The loss of the ability to work in the financial industry can be devastating.
Criminal charges, however, are not likely after overconcentration unless the overconcentration was part of a fraud scheme. For example:
- An investment professional who invests too much of a client’s money in a particular type of investment solely for purposes of earning more commission could be accused of illegal account churning.
- An investment professional who sinks a substantial sum of a client’s money into an investment that he knows is a Ponzi scheme could be found guilty of a securities fraud crime.
- An investment professional who buys a significant number of shares of a microcap stock with client funds as part of a pump-and-dump scheme could be found guilty of criminal investment fraud.
Whether you face civil lawsuits, regulatory action, or criminal charges, it is up to you to try to protect your rights and fight your legal battles effectively. Get the help you need.
How a New York Investment Fraud Lawyer Can Help in Overconcentration Cases
At Bukh Law Firm, PLLC, our New York City investment fraud lawyers have successfully helped many financial professionals resolve all pending legal actions and investigations related to overconcentration. Call today to talk with a securities fraud attorney who can help you to fight for your rights and protect your future.
