Both investors and brokers must accept blame for investment losses, says John Fabello in The Globe and Mail

Be Aware: The Blame Goes Two Ways

May 05, 2009

There is a lot of blame to be spread around for the damage done to everyday investors in the bear market. In fact, these very investors may be culpable in varying degrees for their losses. This isn't to excuse negligent or incompetent work by some investment advisers, which is also a problem.

In a two-part Q&A over the past two weeks, The Globe and Mail examined these issues with securities litigator John Fabello and another lawyer who specializes in representing injured investors.

John conducted a search of recent court cases in which a client took legal action against an investment adviser or a firm. Out of the seven cases he found, five clients lost, while two were decided all or mostly in favour of the injured clients.

A key question in these types of cases, says John, is whether the client initiated an investment decision that ultimately went against the adviser—for example, by pushing for aggressive stocks or mutual funds that were not the adviser's idea. "Trades that are initiated by the client are of a different category. If a client initiates the trade, then all things being equal, they are going to be saddled with more responsibility than they otherwise would."

The five cases in which the client lost began during the technology stock bubble earlier this decade. Notably, the decisions in each of the five were issued during the current round of stock market troubles. One would expect this to result in an investor-friendly court environment. But this hasn't been the case, says John. "It's a very difficult climate to assert a claim. How can you fault a broker—absent some real wronging or fraudulent behaviour—for the whole bloody market tanking? Judges are inclined to be practical in looking at this and say, 'wait a second, everybody has to bear some responsibility for this, it can't just be the broker's fault.'"


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