How Do Defective Securities Differ From Traditional Securities Fraud Cases? - Transcript

Defective securities cases differ from traditional securities fraud cases in several important ways, particularly regarding the roles of brokers, brokerage firms, and the nature of the alleged misconduct. While traditional securities fraud often involves brokers intentionally deceiving investors, defective securities cases often focus on systemic issues with the product itself. At Malecki Law, we help investors navigate these complex claims and hold responsible parties accountable.

Defective securities are financial products that are flawed by design or improperly marketed, often due to misinformation or lack of due diligence by the issuing firm. These products may fail to perform as advertised or carry risks that were not properly disclosed to investors.

Key characteristics of defective securities include:

• Structural Flaws: Issues in how the product was designed or tested, making it inherently unsuitable for sale.
• Misleading Marketing: Products promoted with inaccurate or incomplete information about risks and returns.
• Systemic Failures: The brokerage firm’s failure to provide brokers with accurate information or proper training about the product.

In defective securities cases, the issue often lies with the product itself, rather than the actions of individual brokers. These cases frequently involve claims against the issuing investment company or the brokerage firm that distributed the product.

While both types of cases involve financial losses and potential misconduct, defective securities cases differ in their focus and the parties involved:

1. Source of Misrepresentation:
   • In traditional securities fraud, brokers or financial advisors may knowingly deceive investors about the nature of an investment.
   • In defective securities cases, brokers are often unaware of the products’ flaws. They may have been misled or inadequately trained by the firm selling the product, making the firm the primary target of the claim.
2. Scope of the Issue:
   • Traditional fraud cases typically involve individual brokers or isolated incidents of misconduct.
   • Defective securities cases often involve widespread issues with the product, affecting multiple investors and brokers.
3. Role of the Broker:
   • In traditional fraud, brokers may act with intent to deceive for personal gain.
   • In defective securities cases, brokers may be victims themselves, unknowingly selling flawed products based on inaccurate information provided by their firm.

These distinctions are critical in determining liability and the best approach to recovering losses. At Malecki Law, we help clients identify the nature of their case and pursue claims against the appropriate parties.

Liability in defective securities cases often extends beyond individual brokers to include the entities responsible for designing, marketing, and distributing the product:

• Issuing Investment Companies: These entities are responsible for ensuring their products are properly designed, tested, and marketed. If they fail to disclose risks or correct known defects, they may be held liable.
• Brokerage Firms: Firms that distribute defective securities may be liable for failing to provide brokers with accurate information or adequate training.
• Supervisors and Compliance Departments: Brokerage firms have a duty to supervise their brokers and ensure that the products they sell are in the best interest for their investor clients.

In some cases, brokers themselves may also suffer losses, having invested in the same defective products they were trained to sell. At Malecki Law, we have experience representing both investors and brokers in these cases, working to recover damages and hold firms accountable.

Defective securities cases can be complex, requiring detailed analysis of the product’s design, marketing materials, and the training provided to brokers. Common challenges include:

• Proving Systemic Misconduct: Demonstrating that the product’s flaws were known or should have been known by the issuing firm.
• Identifying Responsible Parties: Determining whether liability lies with the issuer, the brokerage firm, or both.
• Quantifying Damages: Calculating the financial harm caused by the defective product, including out-of-pocket losses and lost opportunities.

At Malecki Law, we work with financial experts and investigators to build strong cases for our clients, addressing these challenges head-on.

Defective securities can cause significant financial harm to investors, often through no fault of their brokers. If you’ve suffered losses due to a flawed investment product, Malecki Law is here to help. Our experienced attorneys are dedicated to holding issuers and brokerage firms accountable and recovering the damages you deserve. Call us today at 212-943-1233 to speak with a New York securities law attorney. You can also complete our confidential online contact form and we will promptly get back to you. We represent investors in New York, throughout the United States, and across the globe.

Transcript:

These cases differ from traditional fraud cases in that many times it’s not the broker who is lying it is really something that they have been told they’ve been trained to say certain things about these defective products that they did not know was false sometimes the case sometimes not the case but in many cases the suit is directly against the investment or directly against the brokerage firm selling it who trains the Brokers ineffectively and inappropriately and did not tell them the defects in the product when they were selling them to their clients and in many of those cases you’ll see that Brokers sold it to their family and themselves I represented Brokers and their families in some of these defective Securities cases myself.