How can accountants identify securities claims?

Certified public accountants and other professionals who perform tax services often find themselves in a good position to identify stockbroker abuse against their clients.

Accountants do not normally review brokerage account statements on a monthly basis.  However, in connection with tax services, accountants frequently review year-end statements or other documents necessary to prepare the IRS Schedule D.   This is a listing of all gains and losses from investments, which must be reported to the IRS for purposes of calculating capital gains taxes.

Here are some common red flags an accountant might notice. 

1.  The client is vulnerable.   Accountants are in a good position to know the background and life circumstances of their clients.   Is the client sophisticated?   Is the client elderly?   Is the client vulnerable to being misled or abused by a stockbroker?

2. The Schedule D is long.  As every accountant knows, the longer the Schedule D, the more trades are being placed in the account.  Does the client understand these trades?  Is the account being churned?  

3.  The Schedule D shows big losses.  Has the client sustained large losses in the account?  If so, why?  Did the client understand the nature of the risks he or she was facing?

4.  The Schedule D shows unusual investment names.  Most accountants will be familiar with blue-chip stocks such as General Electric or Coca-Cola.   If the client has stocks in companies the accountant has never heard of, however, this could be a warning sign.  Is the client investing in thinly traded pink sheet stocks, alternative investments, or structured products?  If so, does the client understand these investments and the risk he or she is facing?

5.  The client does not understand his or her investments.  Most importantly, the accountant is often in a position to recognize that the client does not understand the strategy behind his or her investments.  If this is the case, the client may be vulnerable to stockbroker abuse and unsuitable investment advice.

Please Note:  McCabe Rabin, P.A. provides these FAQ’s for informational purposes only, and you should not interpret this information as legal advice.  If you want advice as to how the law might apply to the specific facts and circumstances of your case, please contact one of our attorneys