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A Misappropriation of Funds Lawyer Can Help Clients and Corporations Recover Losses

As an investor, you expect the people who run the companies in which you invest to act in those companies’ best interests. You also expect your broker or advisor to act in your best interests. Unfortunately, many investors find that their expectations – while reasonable – do not meet with reality. Company insiders misappropriate corporate funds, and brokers and advisors misappropriate funds from their clients. It shouldn’t happen. But it does.

In both scenarios – misappropriation of corporate funds and misappropriation of client funds – investors have clear legal rights. Investors can assert these rights in securities litigation or FINRA arbitration, and they can seek to recover their fraudulent investment losses. If you have suffered investment losses due to misappropriation of funds, we encourage you to contact our securities fraud attorneys promptly for a free and confidential consultation.

About the Misappropriation of Corporate Funds

All companies should have internal controls designed to prevent the misappropriation of corporate funds. But, protecting corporate assets is especially important for publicly-traded companies that offer their stocks to individual investors. When a company fails to prevent misappropriation – or worse, when it attempts to conceal insiders’ misappropriation of corporate funds – the company can (and should) be held liable. Those who misappropriate corporate funds should, of course, be held liable as well.

Depending on the circumstances involved, shareholders who lose money due to misappropriation of corporate funds generally have two main options. These options are:

  • Shareholder Derivative Lawsuits – Filing a derivative lawsuit allows shareholders to take legal action on behalf of the company in which they have invested. While any damages recovered will go into the company’s coffers instead of shareholders’ accounts, filing a derivative lawsuit can still be crucial for protecting the value of shareholders’ investments. Filing a direct lawsuit against the corporate executive or board member who misappropriated corporate funds may also be an option in some cases.
  • Investor Fraud Litigation Against the Company – If a company conceals information about the misappropriation of corporate funds, the company may be liable for investors’ stock losses. Publicly-traded companies have a duty to disclose material information, and this includes information about instances of misappropriation as well as weaknesses in internal corporate controls. Providing false assurances about the sufficiency of internal corporate controls can give rise to investor fraud claims as well.

Whether pursuing a derivative lawsuit or a lawsuit for securities fraud, seeking to recover investment losses due to misappropriation of corporate funds involves filing a lawsuit in court. Our attorneys have experience in both types of cases and can help you choose the best path forward.

About the Misappropriation of Client Funds

Misappropriation of client funds is not only a serious violation of trust, it is also a serious violation of federal law and FINRA regulations. As a result, brokers and advisors who misappropriate their clients’ funds can not only face criminal prosecution, but they can also face claims for damages in FINRA arbitration.

When a brokerage or advisory firm controls an investor’s assets, these assets are in the firm’s “custody.” Firms have strict and extensive obligations to protect investors’ assets in their custody; and, when they fail to do so (i.e. when a broker or advisor misappropriates a client’s funds), they can also be held liable through the arbitration process. Even if a firm takes adequate steps to mitigate the risk of misappropriation, it can still be held vicariously liable for its employees’ misdeeds.

Misappropriation of client funds can take several different forms. For example, under federal law and FINRA regulations, investors can take legal action for:

  • Theft or conversion of investor funds for personal use
  • Theft or conversion of investor funds for the firm’s use (i.e. to cover business expenses)
  • Borrowing or lending investor funds without authorization

Due to the risk of misappropriation, investors should review their account statements on a regular basis. If funds or stocks are missing, if there is a sudden and unexpected drop in the overall value of the portfolio, or if there are any other abnormalities or irregularities, investors should take action promptly. If you have concerns, our misappropriation of funds lawyers can review your account statements and investigate as necessary to determine if you have a claim for investment fraud. If you do, we can then work to recover your fraudulent losses through FINRA arbitration.

Speak with a Misappropriation of Funds Lawyer About Your Legal Options in Confidence

To find out if you may be able to recover your losses through securities litigation or FINRA arbitration, call 212-742-1414 or tell us about your claim online now.