Act Quickly when Victim of Securities Fraud
Nov. 23, 2015
By Edward B. Lowry and Jordan E. McKay
If You Snooze, You Lose: Why investors should act quickly when they believe that they are the victims of securities fraud.
It is common for investors to have a close relationship with their investment advisors or investment brokers. This is partially because of how these relationships often begin. It is not uncommon for an investment advisor or broker to be a friend-of-a-friend or to be someone that the investor met in church or through a volunteer organization. As a result, when a problem arises regarding their investments, investors are reluctant to conclude that they have had bad advice and tend to drag their feet in seeking legal advice or a second opinion. Such a delay, however, can be disastrous to any Virginia Securities Act (“VSA”) claim that an investor might have.
The VSA provides for civil liability for the commission of securities fraud in the sale of securities. In other words, if an investment advisor or broker makes a false statement to you (or omits a material fact) concerning the purchase or sale of an investment, then you may be able to recoup any losses that sustained in purchasing that investment. However, under the VSA, an investor has two years from when the fraudulent activity occurred to file a VSA claim against his investment advisor or broker. This means that if the investor purchased a security in December of 2013, but discovered in October 2015 that his investment advisor or broker committed fraud in selling the investor that security, the investor has only until December 2015 to bring his VSA claim. The same is true for any claim for breach of fiduciary duty that the investor might have. While some Virginia state courts have acknowledged certain equitable doctrines (the doctrine of equitable estoppel and the principal of continuing representation) that may extend the time that an investor has to bring a VSA or breach of fiduciary duty claim, this issue has not yet been decided by the Virginia Supreme Court and it is not guaranteed that a trial court will apply such equitable doctrines.
Now, this doesn’t mean that the investor will lose all legal claims that he might have against his investment advisor or broker. Often, an investor will still have a common law fraud and a breach of contract claim that he may still bring against his adviser or broker to recover any damages that he sustained. The common law fraud claim must be brought within two year from the date the wrongdoing was discovered or should have been discovered and the breach of contract claim must be brought within three years for an oral contract or five years for a written contract. However, unlike a common law fraud claim, the VSA provides remedies in addition to damages, such as security rescission (reversal) of the transactions, and reasonable attorney’s fees. Also, the investor may be able to bring his claim under the federal Securities and Exchange Act of 1933 (the “1933 Act”) or the Securities and Exchange Act of 1934 (the “1934 Act”). All claims under the 1933 Act must be brought within one year from the date the wrongdoing was discovered or should have been discovered, or within the three years after the security transaction occurred. On the other hand, all claims under the 1934 Act must be brought within two years from the date the wrongdoing was discovered or should have been discovered, or within the five years after the security transaction occurred.
The most important thing to remember is that, once you suspect that a possible securities violation has occurred, you should seek legal advice immediately.