Portfolio Margin Account Abuse

Trading on margin accounts has led to some spectacular returns for investors, but more often than not, investors find themselves at a total loss of their portfolio if a margin call is issued or an investment strategy goes sour.  In essence, investors can utilize their existing assets with a brokerage firm; say $50,000, as collateral for borrowing up to another $50,000 in a margin account totaling $100,000.  These so called, cash margin accounts, can then be used to buy virtually any form of securities, or stocks an investor agrees to purchase. 

Fraud Through Margin Account Abuse

Leveraging more money into an investment can return up to double gains on a given investment, but in the process, investors expose themselves to an inordinate amount of risk.  Not only is interest charges to a margin account by brokerage firms for using their money, but also, any detrimental movement of a stock can result in an immediate margin call, which liquidates the account as is, and settles the balance with a broker instantly.  In practice, an investor can lose everything and owe money following a margin call.  Brokerage firms, however, stand to obtain large gains from investors trading on margin, through interest charged for financing the margin.  For this reason, an unethical brokerage firm may entice consumers to trade on margin, when it is clearly not in their best interest or misrepresent the risks associated with that trading practice.  Additionally, individual brokers stand to gain double the commissions for trades made on margin, which may entice them to encourage margin trading.  For most margin account abuse claims, investors will have incurred significant losses due to margin trading, which may have been based on the deceptive assurance of brokers or brokerage firm.

Getting Legal Help

If your financial portfolio has been decimated due to margin account abuse, contact a securities fraud lawyer today to retain your legal rights and potentially recoup your losses.