California Business Lawyer Blog

You've lost money in the market - maybe a substantial amount. What you thought was a way to provide for your retirement or your children's education has instead robbed you of that future, or at least delayed your plans.

You're hurt and you're angry - understandably so - and you think someone needs to make you whole.

Can you sue your broker, fund manager or financial adviser? It depends.

The Big Question: Were You a Victim of Fraud or the Market?
The big question is whether your broker did anything illegal. You can sue only if what your broker did was more than just "bad" in the sense of "unfortunate" or even "awful." Instead, there must have been actual wrongdoing.

Losing money in the market, no matter how much, doesn't give you the right to sue. Sometimes it's just bad luck. After all, investing - even in blue chip investments - carries risks, and the main risk is that the value of your investment will decline. Note: Throughout this article, we'll generally call brokers, advisers and fund managers "brokers" to keep things simple.

What if your broker gave you bad advice? It depends on "how bad." If your broker recommended investments that were in line with your investor profile, and those recommendations were reasonable based on everything your broker knew or should have known, then no - you can't sue.

What kind of bad behavior does result in liability? Basically, there are four kinds of bad behavior that may give you the right to sue your broker:

1.Lying or misrepresenting claims;

2.Your broker acting in his interests, not yours, such as claims of misrepresentation, churning, unsuitability and lack of diversification;

3.Not following instructions, including claims of unsuitability, lack of diversification and breach of contract; and,

4.Unreasonable carelessness, like claims of breach of fiduciary duty and negligence.

There are a number of different claims that can come out of these bad behaviors, but fundamentally, if your broker didn't do one or more of these things, there is no claim.

To put it another way: If your broker followed your instructions, was always honest with you and was reasonably careful, then you can't sue him - even if his advice or investments went horribly wrong.

So before suing or filing the paperwork for arbitration, take a deep breath and ask yourself if your broker lied, ignored your instructions, was unreasonably careless or put his own interests ahead of yours. If the answer is no, and all he did - with the best intentions, and based on what he reasonably knew at the time - was put you into investments that tanked, then there is no liability.

You'll notice that we did not answer the question of, "What if my broker stole or embezzled money from my account?" That's because the answer is simple - sue their assets off and report them to law enforcement.

Theft is theft, whether it's by your broker, a guy on a street corner with a gun or that cousin you never really trusted anyway. Even so, in a later section, we cover two common criminal schemes involving investments and securities, the Ponzi scheme and the pyramid scheme. But the short answer is that theft is always actionable.

Can't Base a Claim on Hindsight
This particularly applies to claims based in negligence.

In retrospect, we'd all agree that investing heavily in dotcoms that had no profits or real business plans, had inexperienced management and believed all that mattered were "clicks" or "eyeballs" was not a good idea.

Except that in the late '90s, it was a good idea. Common wisdom was that the New Economy had slipped the surly bonds of economic constraints and would touch the face of God - or at least keep appreciating in value pretty near forever.

Millions of people, either directly or through their mutual funds, invested large portions of their portfolios and assets in dotcoms (including ones with a sock puppet "spokesman"). A lot of very knowledgeable, very sophisticated brokers, analysts, advisers and investors were taken in by the hype.

So, in retrospect, the dotcom bubble was an implosion waiting to happen. But at the time, it seemed like a good idea. It would have been very hard to show that your broker was negligent in recommending tech stocks when everyone was buying them.

As always, it's in your interest to stay actively involved in managing your investments, and you have certain obligations to do so in order to hold your broker responsible for any wrongdoing

Continue reading "Bad Business Broker or Just Plain Bad Luck" »

While filing for bankruptcy can ruin one's credit record, it can protect consumers from debt collection actions, including being taken to court.
Mounting medical bills and job losses have pushed many U.S. residents to seek protection from creditors by filing for bankruptcy in federal court, which saw a 68 percent increase in bankruptcy filings over the past year.

Steven Peck, a California Business Attorney, says chronic medical conditions are triggering a rise in bankruptcy filings because some of the major medical bills consumers face aren't always fully covered by health insurance.
"Most clients who come to see me have done everything they can do to avoid bankruptcy, and every penny of available income has been spent, but debts are still owed, including late fees, interest, penalties, court costs, etc.," Peck says.
Debt-burdened consumers also can get overwhelmed as garnishments, repossessions and foreclosures loom, he added.

The National Bankruptcy Research Center reported that bankruptcy filings rose by nearly a third last year."As foreclosure and unemployment rates rise, consumers and businesses turn to bankruptcy for reprieve. A fundamental goal of the bankruptcy code is to grant the debtor a "fresh start" from burdensome debts, according California Bankruptcy Attorney Steven Peck.

But while the bankruptcy code offers a fresh financial start for those crumbling under the weight of heavy debts, debtors who must list their assets and liabilities, by business professionals who must disclose their relationships and financial arrangements, and by trustees who must zealously attend to their fiduciary duties.

There are several bankruptcy filing categories in which a debtor can file, and the most common are filings under Chapter 7 and Chapter 13 of the bankruptcy code.

Under Chapter 7, in return for having debts discharged -- meaning debtors are no longer obligated to pay them -- a debtor must turn over certain non-exempt property to a bankruptcy court trustee to be sold and the proceeds distributed to creditors.

Non-exempt properties include tax returns, real property other than the debtor's home, or a second car for a single filer. In order for a debtor to keep any property subject to liens and mortgages, such as cars or homes, the debtor must continue to make regular payments to retain the property, indicates California Business Attorney Peck.

Under Chapter 13, debtors propose a repayment plan to make installments of past-due debts to creditors for a period of three to five years. During the repayment plan period, the law forbids creditors from starting or continuing collections efforts against the debtor. But if agreed-upon payments fall behind, the trustee and/or the creditor can ask the court to allow foreclosure proceedings against the debtor.

The surge in bankruptcy filings have occurred even after the bankruptcy laws were substantially changed in 2005 to make it more difficult for individuals," according to Peck, to have their debts discharged under Chapter 7 of the bankruptcy code.

The National Bankruptcy Research Center, which compiles and analyzes bankruptcy data, stated that personal bankruptcy filings across the nation rose to 1.41 million last year, representing a 32-percent jump from 2008. It added that 2009 saw the highest bankruptcy filings since 2005 when reforms made bankruptcy filing tougher.
The 2005 bankruptcy law overhaul pushed more consumers into Chapter 13 filings instead of Chapter 7, according to the center. However, to file under Chapter 13, an individual must have a regular income, and with the national unemployment rate at 10 percent, many filings may not met that standard.

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Continue reading "Medical Bills and Job Losses Have Pushed U.S. Residents To Seek Bankruptcy Protection" »

Although the goal of the federal bankruptcy laws is to offer a financial "fresh start" to the honest but unfortunate debtor allowing a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.

A discharge releases you from personal liability for certain specified types of debts. Discharge means you are no longer required to pay those debts. It is your 'get out of jail free card', so to speak. It is refreshing, and; relieving. And best of all, it is morally, ethically, and; legally o.k. It is your fresh start!

The discharge directs creditors to refrain from taking any form of collection action on discharged debts, including legal action and communications with you such as telephone calls, letters and personal contacts. In other words . . . hopefully in your case . . . No more worrying. When you place it in our hands, you will hopefully begin to feel release, and; begin to sleep at night, knowing that no one will harass you on the phone any longer.

Not all debts are discharged in a California bankruptcy. Although you may be relieved of personal liability some debts may continue after the discharge. For instance some liens on a property may remain after the bankruptcy case. A second trust deed; in some cases, might be discharged completely! That means, that if you have a $100,000.00 secondary lien on your home, it could be wiped off completely (this of course is on a case by case basis, and; you will need to call the law firm for an appointment to discuss your case).

A secured creditor may enforce the lien to recover the property secured by the lien. In other words, if your car is still under financing, the lender can repossess the vehicle. You may; however; reinstate the loan if you so desire in certain situations.

Other types of debt that are not dischargeable include alimony, child support, certain taxes and debts for death or personal injury caused by the debtor's operation of a motor vehicle while the debtor was intoxicated from alcohol or other substances. (Of course, all bankruptcy matters are on a case by case scenario, and; each client's matters must be discussed with the attorney in order to insure that all of the rules of bankruptcy are applied and; that the best relief possible is being given to you).

Continue reading "Dischargeability of Debt in a California Bankruptcy: Basic Principles" »

Commercial bankruptcies among the nation's more than 25 million small businesses increased by 44% from the thirdquarter of 2008 to the third quarter of 2009, according to Equifax Inc. (NYSE:EFX), which analyzes its comprehensive small business database for theon-going study.

Comparing the month of September 2008 to September 2009 shows an increase of
27 percent. There were 9361 bankruptcy filings in September 2009 throughout
the U.S., up from 7386 a year ago, according to the data.

California remains the most negatively affected state with eight MSA's
(metropolitan statistical areas) among the 15 areas with the most commercial
bankruptcy filings during September 2009.

Los Angeles, Riverside/San Bernardino and Sacramento metropolitan areas
continued to lead the nation in small-business bankruptcy filings as they did
at the end of the second quarter. The other MSA's with the most bankruptcy
filings during the month include:

-- Denver-Aurora, CO
-- Santa Ana-Anaheim-Irvine, CA
-- San Diego-Carlsbad CA
-- Dallas-Plano-Irving, TX
-- Portland-Vancouver-Beaverton, OR-WA
-- California (excluding MSA's within the state)
-- Oakland-Fremont-Hayward, CA
-- Oregon (excluding MSA's within the state)
-- Chicago-Naperville-Joliet, IL
-- Houston-Sugar Land-Baytown, TX
-- San Jose-Sunnyvale-Santa Clara CA

-- Atlanta-Sandy Springs-Marietta, GA

"Economic pain is continuing for small businesses across the country. We're
still seeing hefty increases in the number of bankruptcies in a lot of major
metro areas." said Dr. Reza Barazesh head of North American research for
Equifax's Commercial Information Solutions division.

"However, the 69 percent drop and 49 percent decline in bankruptcies in
Charlotte and New York-White Plains respectively, and a 44 percent drop in
Atlanta between the second and third quarters indicates that the East Coast
may be experiencing an earlier recovery from the recession than the West
Coast."

Charlotte - number four in June - dropped out of the top 15 entirely to 39th;
Atlanta dropped from fifth to 15th; and New York - White Plains dropped from
eighth to 24th.

Equally consistent with this east/west difference over the same period, the
11th, 12th and 13th MSAs with the greatest number of bankruptcies at the end
of the second quarter of 2009 -- Santa Ana-Anaheim, Denver and San Diego --
increased in rank to 5th, 4th, and 6th by the end of the third quarter. Santa
Ana-Anaheim increased three percent, Denver was up 13 percent and San Diego
increased four percent.

For its research, Equifax reviewed and analyzed small business data for the
month of September, the most recent month for which complete data is
available, and compared it with results from September 2008. Equifax defines
a small business as a commercial entity of less than 100 employees.

The company's report also listed the 15 metro areas with the fewest
small-business bankruptcy filings. They are:

-- Charleston, WV
-- Trenton-Ewing NJ
-- Tallahassee FL
-- South Bend-Mishawaka IN-MI
-- New Jersey (excluding MSA's within the state)
-- Holland-Grand Haven MI
-- Gainesville FL
-- Baton Rouge LA
-- Wilmington NC
-- Toledo OH
-- Roanoke VA
-- Lubbock TX
-- Lancaster PA
-- Springfield MA

-- Savannah GA

For the analysis, Equifax analyzed Chapter 7, 11 and 13 filings. Chapter 7 is
a liquidation proceeding in which a debtor receives a discharge of all debts;
while Chapter 11 and Chapter 13 are reorganization bankruptcies enabling
individuals and companies to pay off debt over a set period of years.

Continue reading "Commercial Bankruptcies Continue there Increase" »