Rules on Securities Misrepresentation

Section 10 of the Securities Exchange Act of 1934 states:

“It shall be unlawful for any person…(b) To use or employ, in connection with the purchase or sale of any security…any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe… .”

Sec. 15 of the Exchange Act states:

“No broker…shall… effect any transaction in, or induce or attempt to induce the purchase or sale of any security…by means of any manipulative, deceptive, or other fraudulent device or contrivance.”

For Chicago Securities Arbitration attorneys call 312-782-0844.

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Brokers do Have a Duty to Recommend Only Investments Suitable to Their Customers

The rule is NASD Rule 2310 and it provides the following:

(a) In recommending to a customer the purchase, sale or exchange of any security, a member shall have reasonable grounds for believing that the recommendation is suitable for such customer upon the basis of the facts, if any, disclosed by such customer as to his other security holdings and as to his financial situation and needs.

(b) Prior to the execution of a transaction recommended to a non-institutional customer…a member shall make reasonable efforts to obtain information concerning:

(1) the customer’s financial status
(2) the customer’s tax status
(3) the customer’s investment objectives; and
(4) such other information used or considered to be reasonable by such member or registered representative in making recommendations to the customer.

For Chicago Arbitration matters call 312-782-0844

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Violations of NASD Rules Used as Evidence

A customer does not ordinarily have a right of action for violation of the NASD or NYSE rules, but they may be used as evidence of the standard of care which brokers should achieve and these rules are admissible on the issue of what fiduciary duties are owed by a broker to an investor.

In some cases they have been held to confer a private right of action, such as in cases of violation of the NYSE “know your customer rule”, Rule 405.

Contact Securities Lawyer Don Thompson by calling 312-782-0844

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