Financial Suicide

Investment professionals, including stock brokers, have a duty to refuse unsolicited transactions when the transactions are inappropriate or unsuitable for a customer based on the financial condition of that customer. Cohen, The Suitablity Doctrine: Defining Stockbrokers' Professional Responsibilities , 1978 J. Corp. L. 533 (1978); In re Philips & Co. , 37 S.E.C. at 70 (representative's knowing recommendation of unsuitable security not excused by customer's belief that security was suitable); In re Powell & McGowan, Inc. , 41 S.E.C. 933 (1969)(registrant had obligation not to recommend a course of action even if he fully disclosed all risks to customer whose financial and physical condition made the recommendations unsuitable); In re Harold R. Fenocchio , '34 Act Release No. 12194 (given the advanced age of customer, representative had a duty "to make a serious inquiry into the situation of the customer's investments and to prevent the dissipation of the customer's capital by excessive turnover"); In Board of Trustees v. Chicago Corp., No. 88-C-3855 (N.D. Ill. 1988) (1988 U.S. Dist. LEXIS 14031)( the court held that a broker had a duty to monitor a client's investment decisions, which were effected by client's trustee, and to advise client of soundness of the trustee's decisions); Duffy v. Cavalier , 215 Cal. App. 3d 1517, 264 Cal. Rep. 3d 740 (1989) (court held that as a fiduciary, the broker had a duty to tell a client that the client's investment objectives were improper and unsuitable and "to refrain from acting except upon the customers express orders"); Nobrega v. Futures Trading Group, Inc., [1999] Sec. L. Rep. (BNA) Vol. 31, No. 28, p. 950 (CFTC 1999) (broker sanctioned for failing to correct client's "erroneous beliefs" about safety of commodities trading and failing to stop client from continued trading once aware of these erroneous beliefs).

It is well established that a broker has a duty to provide adequate warnings about investment strategies particularly when trading on margin. See, e.g. Gochnauer v. A. G. Edwards & Co., 810 F.2d 1042 (11th Cir. 1987) (holding broker liable when he advised and assisted customers with conservative investment objectives in establishing a speculative options trading account); Beckstrom v. Parnell , 730 So.2d 942 (La. App. 1998)(imposing liability on broker for failure to warn elderly customer about high costs of switching mutual funds when broker aware of customer's diminished capacity); Nulph v. First Security Investor Services, Inc., 1998 WL 1179858 (N.A.S.D. Nov. 19, 1998)( unsophisticated divorcee awarded $70,000 for failure of broker to warn of speculative information gathered from internet chat rooms and then placed trades on the telephone without any recommendations).

Under these circumstances, the broker has an affirmative duty to cut a customer off, and stop what has become to be known as "financial suicide." See, e.g., J. Gross, Economic Suicide: A Primer for Securities Arbitration Lawyers , Securities Arbitration 2003 Vol. I at 387 (PLI 2003). See also, Problem Gambling in the Stock Market and Extent of Brokerage Firm Responsibility for Prevention , Marvin A. Steinberg. Ph.D., Connecticut Council on Compulsive Gambling, Judah J. Harris, J.D., Milford, Connecticut, 1994; Gambling and Problem Gambling in the Financial Markets, Marvin A. Steinberg, Ph.D., Connecticut Council on Problem Gambling, July, 1998; Investing and Gambling Problems, "Some Investors May Be At Risk For Gambling Out Of Control In The Stock Market And Other Financial Markets"; See also, Model Employer Management of a Case of Stock Market Gambling , Judah J. Harris, J.D., Milford, Connecticut, Marvin A. Steinberg, Ph.D., Connecticut Council on Compulsive Gambling, 1994.