When most people think of the word security, they might think of an alarm system that protects their home or car. However, in the world of finance, a security refers to a negotiable financial instrument representing value. Securities are qualified as debt securities (such as bank notes or bonds), equity securities (such as common stocks and mutual funds) and derivative securities (such as hedge funds and futures). Securities were originally represented by certificates, but increasingly, they’ve come to be represented electronically.
Most people who invest in securities like stocks assume that the sell-side party will act in good faith. However, anyone who remembers the Bernie Madoff investment scandal can likely attest that there are cases in which parties negate their fiduciary duty, committing acts of negligence or outright fraud. Because of the complexities of financial law, in cases that involve securities, it is often prudent to retain a security investment management expert witness.
Here are some types of cases in which a securities expert can provide support:
Acts of Negligence
Unfortunately, acts of negligence are all-too-common in the financial sector. One of the most frequent scenarios in which negligence occurs is when brokers or financial managers fail to execute orders. A financial representative has the fiduciary duty to execute the orders of their clients. If, for example, a party asks a broker to sell stocks at a certain time, and the broker fails to do so, lots of capital can be lost. If a broker fails to enact an order or does not do so in a timely fashion, it can be classified as negligence.
Insider Trading and Stock Fraud
From Michael Milken to Martha Stewart, there have been a number of high-profile insider stock trading scandals. However, stock fraud is actually a common occurrence. For each high-profile insider trading case, there are many more incidents of stock fraud that arise. An expert can help a litigator to decide whether a party shared information they should not have or concealed information that should have been shared.
A duty of loyalty requires that a financial employee, agent or broker act in the sole best interest of their employer without any regard to their own self-interest. If an employee acts in their own best interest it can easily result in what’s known as constructive fraud. Constructive fraud, a breach of fiduciary duty, is a lot easier to prove than outright financial fraud. To prove constructive fraud, a claimant must only demonstrate that the defendant was in a position of financial trust and concealed, omitted or breached fiduciary trust in some other way which resulted in them benefiting personally.
These are just a few of the scenarios in which a security investment management expert can add vital support to a legal team.