When I’m driving around in the late evenings and listening to CNBC on my Sirius XM radio, I often hear commercials for some pretty off the wall companies. The latest one to pique my interest was from 1-800-STOCK-LOSS, which promises to help callers recover their investment funds in the event of fraud. That’s the basic premise anyway, the advertisement simply talks about recovering any stock loss, not pointing out that if you chose a bad investment, it’s really on you. The law protects you against a Madoff type of situation, not a bonehead one in which you invest in a poorly performing company.
I won’t go into the company behind 1-800 Stock Loss (their homepage, if you do a search and find it, doesn’t instill much confidence because “recommendation” is spelled incorrectly) but I wanted to talk about this group of companies in general.
I’m not a lawyer so if you think a company like this could help you, I’d consult an independent lawyer or someone you trust. I kept hearing this ad over and over again so I thought I’d try to figure out what this was all about. Chances are some of the things I write below are inaccurate, so please correct me if you know better.
Stock Loss Recovery Lawyers
Stock loss recovery companies exist to protect investors from cases of actual investment fraud. Fraud comes in a variety of flavors but ultimately is the result of brokers failing their fiduciary duty. Fiduciary duty means that your broker, whom you pay for services, needs to act in your best interest. Fraud occurs when the broker fails to uphold that duty in any way, which may include withholding information, advising you to buy certain securities or offering insider information.
Those companies can’t recover any type of loss. There hasn’t be fraud involved. If you invest in shares of Apple  (I own shares of Apple) and the stock falls, you can’t sue your broker because no fraud has occurred. If your broker tells you that you should invest in Apple, because he heard from an Apple accountant that pre-order sales in the new iPad have exceeded Wall Street projections, then that would be fraud. In fact, you’d get in trouble for acting on that information and not reporting it.
Remember the movie Boiler Room ? It’s a movie about a pump and dump brokerage house, J.T. Marlin, starring Vin Diesel and Giovanni Ribisi. In that movie, the brokers would pitch clients on penny stocks with the hopes of pumping up the share price ahead of a dump. For a more real life example, consider Sky Capital Holdings , a life-meets-fiction version of Boiler Room. If you were the victim of that fraud, a stock loss recovery lawyer would be one mechanism by which you could try to recover your funds.
So, despite what the advertisements may promise you, unless there is actual fraud involved, you can’t recover your money.
As I wrote earlier, I don’t know much about this type of thing (I’ve thankfully never been scammed like this – knock on wood) so if I have it wrong or miss key points, please let me know!
(Photo: thewalkingirony )