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Securities Damages Difficult to Analyze
By Mitchell S. Ostwald

Two recent cases once again illustrate the difficulties in analyzing damages in securities cases. In each of these cases, the customer was initially told by their first attorney that they had "no case". Luckily for these investors, they went to another attorney.

Case 1 - The customer made money, but had almost a half of million dollars in unusual losses.

The broker recommended to the customer the need to sell zero coupon bonds and then repurchase new zero coupon bonds in the IRA account. Even though the face value remained the same, a secondary analysis of the payout resulted in the customer losing $362,000.00 that was originally guaranteed for the years 2017 and 2019.

The customer also had a personal account which contained municipal bonds. Again, the broker urged specific trades which on the face resulted in no losses; however, a further analysis shows that there was a loss of annual interest income of $26,000.00 per year, which would penalize the account from that point forward. Stopping the analysis after five years or $130,000.00 plus all the commissions (which were estimated at just over $100,000.00) resulted in a total damage analysis for this client of nearly $500,000.00. Yet on the face of the account statements, the customer showed no losses.

Case 2 - No losses from trading, but whopping new taxes to pay.

The broker urged the sale of a portfolio of very low cost, good quality stocks and replaced them with their own assortment of equally good stocks. While the customer did not lose any money on the stocks that they bought for the investor, the investor paid over $180,000.00 in capital gains tax.

The issue in this portfolio was not one of diversification or quality (because they were very similar stocks), nor was it a churning case (because it was not repetitive trading), but it showed unnecessary transactions which resulted in losses vis-a-vie the investor's tax returns.

Like all areas of the law, securities matters are very complex and require a securities attorneys to consider a wide array of issues while analyzing cases. These analysis include the utilization of securities consultants which are an important element of the practitioner's ability to properly evaluate cases. In this age of attorneys being held responsible for misdiagnosing a case, a referral to an attorney in that area of law is important for both the client and referring attorney.

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