Legendary investor Warren Buffet once said, “Only when the tide goes out do you discover who’s been swimming naked.”
What Buffet is talking about are the investments in your portfolio. The tide going out is a metaphor for a bear market, and swimming naked refers to poor investments, which often find their way into one’s portfolio because of imprudent investment advice, conflicted advice, or just plain investment fraud.
Now that we seem to have entered bear market territory, it is time to see if your financial adviser has you swimming naked. And what you can do about it.
What the Changes Mean for Investors
California has amended its securities laws to give California investors a new and significant weapon in the fight against promoters and brokers who either lie or conceal material facts. The legislation, which went into effect in 2022, now requires courts to award attorneys’ fees to investors who prevail in certain securities-related claims.
California imposes certain fiduciary duties on persons who furnish investment advice. Persons covered would include:
- Stock promoters
- Investment advisers
California law requires these persons to put the investors’ interests ahead of all else and be truthful in all dealings with the investing public.
Persons who fall victim to those who ignore their duties are entitled to recover the consideration, i.e., the money, they paid for the investment, plus interest at the legal rate, less the amount of any income received on the investment.
However, in the past, investors bringing claims against persons who have breached these duties, even when they prevailed on the merits, had to pay for their own legal costs. This typically represents a significant portion of any recovery and deprives the victim of being made 100% whole.
Innocent victims whose finances had been depleted through financial mismanagement and investment fraud were burdened and placed at a disadvantage.
The amendments to Corporations Code section 25501 changed this and leveled the public investor playing field, adding the following language for claims involving securities fraud:
“In addition to the relief described above, the court shall award reasonable attorney’s fees and costs to a prevailing purchaser or seller who succeeds in establishing a right to the relief . . . .”
A Positive Change for Investors
The new fee-shifting language is a significant change in favor of investors’ rights and raises the stakes for those who choose to ignore their fiduciary duties. The language is not discretionary, it’s mandatory, and it goes in only one direction – in favor of the investor.
Once a victim establishes liability and investment losses, the only question left for a fact finder to resolve is what are the “reasonable attorney’s fees” in the case.
As the tide goes out, it’s time to see if you are still wearing your bathing suit.
Questions? Contact an Attorney from Sanford Heisler Sharp
If you have questions or concerns about whether you have been the victim of securities fraud, Sanford Heisler Sharp has a number of financial services lawyers in San Diego, New York and Washington, DC with extensive experience dealing with complex investment data and investor documents to evaluate whether you have been the victim of securities fraud. For more information about your rights and our legal services, contact us online now.