The dismissal of a federal class action securities lawsuit does not mean that investors are necessarily barred from seeking recovery of losses that they have sustained as a result of inappropriate conduct. For example, as often happens, a federal appeals court this week dismissed a class action lawsuit against auto parts supplier Visteon Corp. and its executives in which the investors accused the defendants of defrauding them out of billions of dollars. The court held that the class action plaintiffs failed establish that material facts had not been adequately disclosed in a class action lawsuit based upon company’s prospectus, financial reports, or other communications to investors.
While, at first blush, the ruling seems to leave investors out in the cold, many may still have recourse. Any investor who purchased Visteon based upon their stockbroker’s or financial advisor’s recommendation may be able to recover losses under the doctrine of “unsuitability,” which is much easier to prove than securities fraud. Simply put, every stockbroker or financial advisor has a legal duty not to recommend the purchase of a stock unless that stock meets the client’s risk tolerance and investment objectives. Visteon, which was spun off from Ford Motor Company, was inherently risky and unsuitable for conservative or moderate investors. If a stockbroker or financial advisor recommended the investment to such investors, they have a legal right to recover their losses. Such claims are usually brought in arbitrations before the Financial Industry Regulatory Authority, or FINRA, where claimants prevail more often and recover a larger percentage of their losses than in a class action. It is important, however, that the investor “opt out” of any pending class action in order to pursue their claims individually. If the investor fails to opt out before the deadline set by the court presiding over the class action, the investor’s claims can be barred forever.
Every stockbroker or financial advisor has an obligation to know his or her customer, including an intimate knowledge of the customer’s investment objectives and risk tolerance. Unless a client had a huge appetite for risk, any recommendation to buy Visteon would have been negligent or “unsuitable” in industry terminology. Even investors who might be willing to tolerate a small amount of risk in their portfolio might find themselves suddenly over-concentrated in risky stocks like Visteon as a result of a broker or financial advisors negligent recommendations.
Page Perry has represented thousands of investors in FINRA arbitrations, many of them involving these types of suitability claims. Page Perry is an Atlanta-based law firm with over 125 years collective experience. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1 million dollars for clients on more than 30 occasions. For further information, please contact us.