Download Investor Questionnaire

Law Office of
John Courtade
4408 Spicewood Springs Road
Austin, Texas 78759
512.502.1135 (voice)
512.502.1138 (fax)
[email protected]
INVESTOR’S OUTLINE AND CHRONOLOGY
An investor contemplating legal action and an attorney evaluating the investor’s
claim have a common goal: setting all the facts before the attorney in an organized
fashion so that the attorney can give his or her best advice. The following guide
organizes the information that will typically be relevant to a securities claim by an
investor. Also included in this package is an important caution about statutes of
limitation.
BASIC INFORMATION
1.
Name(s) of investor(s).
2.
Investor’s home and business addresses, telephone numbers, fax numbers, and
e-mail address.
3.
Name and address of the broker-dealer, investment adviser, company or
individual against whom the complaint is made.
4.
Name and capacity of any individuals with the broker-dealer, investment adviser,
corporation, limited partnership, etc. with whom the investor has dealt or who have
relevant knowledge, e.g., the registered representative handling the account, a branch
manager with whom the investor spoke, the acquaintance who persuaded the investor,
etc.
5.
The investor’s investment and litigation history. Where else he/she has had
accounts in the past, what types of investments he/she has made in the past. His/her
general degree of knowledge of finance and business. Any past legal actions or written
complaints made in connection with investments or other financial matters.
6.
Description of the security which is the basis of the complaint, e.g., common
stock of XYZ company, a 20 year church bond, an oil or gas interest or purchase of an
interest in an orange grove. 1 If the complaint relates more to mismanagement of an
account versus a specific security, a general description of the type of stocks, bonds,
and mutual funds in the account and a few representative examples will suffice.
1
As the Supreme Court decided over 50 years ago, an investment in any
common enterprise for profit in which the success of the investment depends largely on
the efforts of others is an investment contract, which is a type of security. SEC v.
Howey, 328 U.S. 293 (1946).
7.
The amount of the investment, both in dollars and in shares if applicable.
8.
When the investment was made, when the events causing the loss occurred,
and when the investor learned any adverse information. This is critical for analyzing the
applicability of statutes of limitation.
9.
The source of the securities if the securities complained of were not purchased
in a routine secondary transaction on a stock exchange or NASDAQ. E.g., an
underwriting of new shares in a public offering or a purchase from a company insider in a
private transaction.
10.
The specific things which the potential defendants said or omitted to say which
the investor believes were false or misleading or the specific actions or inactions by the
defendants which the investor believes injured him/her. Examples follow:
--
The account executive at the broker said that the stock of XYZ corporation,
then trading at 12, was guaranteed to go to 30 within the year.
--
The investor placed a market order to sell the stock with the broker. The
broker sat on the order for 4 hours before executing while the price of the
stock declined 2-1/8.
--
The president of the oil and gas driller falsely said that the property had
proven reserves in a certain amount.
--
The investment advisor stated that ABC company was the next Microsoft, a
company with proven management and a brilliant new product, omitting to
note that the company’s owner was his brother-in-law whose only prior
experience was working in a Dairy Queen.
11.
What instructions the investor gave to the broker or investment advisor both
orally and in writing as to investment goals and the types of investments he/she wanted
to make, both on the new account form and otherwise.
12.
Any other facts which you believe are important and throw light on what
occurred.
13.
Any actions you have taken thus far in pursuing your claims, e.g., complaint
letters to broker, to state and federal regulators, etc.
CHRONOLOGY
A very useful way to organize the facts, particularly the history of what was said
and what occurred, is organize it in chronological fashion. If there has been a long
history, the investor may not remember exactly how many conversations occurred or
what was said in each conversation. It is still important for the investor to recall as much
as is possible and to set it forth in sequential fashion. An example of a chronology
follows:
time
event
early July, 1999
Felix Krull, a salesman with Superslick Securities, a Fort Lauderdale
broker, cold calls. He says that every now and then exciting
investment opportunities come to their attention and asks if he can
call me if such a deal comes along.
July 16, 1999
Felix calls again, says that he has just learned that Cosmic Cola
Company has a revolutionary new product, a self-chilling can: pop
the top and it chills itself. Also, Cosmic has an agreement in
principal with the Chinese government to receive exclusive
distribution rights for soda pop in China. Can he put me down for
$50,000 in stock ? I say that I’d like to think it over. Felix says that
“the train is leaving the station.” The stock is now trading at 12-1/2,
and there will never be another opportunity to buy at this price. I
place an order for $50,000 of stock.
Aug. 1999
Felix calls 3 or 4 more times, asking me to increase my position.
The stock is now trading at 15 but Felix believes that it will “go to the
moon” after the distribution agreement with China is finalized. In
one of the conversations, I ask Felix to send me literature on the
company, which he says he’ll do, but I never receive it.
Nov. 1999
I see in the newspaper that the price of Cosmic has declined to 103/8. I call Felix and say that I’m feeling nervous and want to sell.
Felix gets very angry and says that that would be the absolutely
worst thing that I could do. He says that there has been a delay in
announcing the Chinese distribution agreement but that he has
confidential information that it will happen soon.
late Dec. 1999
The stock is now trading at 8-1/4. I call to sell. Felix is not there but
I talk with Roberta Vesco, the office manager. Roberta argues with
me for a half an hour not to sell the stock until I finally agree.
Feb. 18, 2000
The stock is now trading at 5-1/2. I finally obtain Cosmic Cola’s
SEC filings from EDGAR, the SEC’s database on its website.
late Feb. 2000
After reviewing the SEC filings, I see that Cosmic Cola had an
underwriting by Superslick Securities in early July 1999. The
prospectus says that there is only a prototype of the self-chilling can
and that there are uncertainties whether the commercial
manufacture of the can is possible. Also, Cosmic Cola is involved in
a patent dispute with Galactic Cola over the can. There is nothing in
the prospectus about foreign distribution except that Cosmic has an
agreement with Pipe Dream Distributors in Salt Lake City, Utah, that
Pipe Dream will use best efforts to distribute Cosmic Cola in China.
March 4, 2000
I call Felix and confront him with what I’ve learned from the
prospectus and company reports. He denies that he ever claimed
that an agreement in principle for exclusive distribution in China had
been reached and says that he told me that all securities had
inherent risks.
DOCUMENTS FOR REVIEW
The attorney will generally need to review all of the following documents:
1.
All account statements, monthly, yearly, or otherwise.
2.
Any confirmations.
3.
All agreements and account opening documents pertaining to the account. These
are typically signed whenever an account is opened with a broker. If you did not save
copies of these, you need to request them from the broker. Account opening
documents are particularly important in a typical suitability case because they should
reflect what the investor stated to be his/her investment objectives and risk tolerance.
4.
Any written materials the investor received about the investment, e.g.,
prospectuses, business plans, press releases, product information.
5.
Any notes the investor made of conversations with potential defendants.
6.
Any correspondence with potential defendants or with anyone else about the
investment.
7.
Any taped recordings the investor may have of conversations. State laws vary on
this, but in Texas and the majority of states, it is legal to record conversations in which
you are a party.
8.
Any correspondence to or from the broker, state or federal regulators, or the
NASD regarding the claim.
STATUTES OF LIMITATIONS: A POTENTIAL TRAP
I generally distribute this handout to an investor when he or she first contacts me.
Since an investor may not decide to go forward at that time and since I do not agree to
represent an investor or take any action on an investor’s behalf until we have reviewed
the facts together and have signed a written agreement about my representation, I stress
the importance of statutes of limitations, which have the effect of barring claims after a
certain time.
Limitations periods for federal claims are applicable anywhere in the United
States. Limitations periods for state claims, either statutory (such as a state securities
law) or common law (such as fraud or negligence), vary state-by-state. The limitations
periods that apply to the common claims in investor-broker litigation brought in Texas are
stated below. Other periods will govern claims in other states. Most state claims have
limitations periods of two years or more, but there are occasional unexpected traps.
Limitations periods for common investor claims in Texas are:
fraud under the federal securities laws
(Rule 10b-5)
2 years/ 5 year cut-off *
fraud under Texas Securities Act
3 years/ 5 year cut-off *
common law fraud
4 years
Deceptive Trade Practices Act ("DTPA")
2 years
breach of contract
4 years
negligence/ negligent misrepresentation
2 years
Whether any of these claims pertain in a specific case depends on the facts, but
they are the claims that I make most often in such situations. Such statutes will
generally begin running on the day that the wrongdoing occurs, e.g., the date of a
fraudulent sale or a breach of contract. Separate transactions may have separate
limitations periods. Also, different claims based on the same transaction may have
different limitations periods. For example, 2-1/2 years after a stock transaction, a claim
under the Texas Securities Act would clearly be allowed, but a claim for negligence or
under the DTPA might be barred. These limitations periods can in many cases be
extended by the "discovery" rule, although the ones with the asterisks can't be extended
past the cut-off. The discovery rule means that the statute begins running when the
plaintiff knew or should have known of the wrong. This is also sometimes referred to as
"inquiry notice." The investor doesn’t have to know everything, just enough to know that
there's a problem that needs investigation. Awareness of a large loss, for example,
might put an investor on inquiry notice and start the clock ticking. If an investor exceeds
the initial limitations period, it then becomes an issue in the litigation when he or she
should have known there was a problem. If a court (or an arbitration panel) rules that the
limitations period for a claim has passed, then the claim is barred, no matter how
meritorious. Arbitration panels enforce limitations less rigorously than the courts in my
experience, and there are some legal arguments that limitations don’t apply at all to
arbitrations (as contrasted to court cases), but you should assume, conservatively, that
limitations may be enforced in arbitration.
These remarks are intended as a general discussion, not legal advice. I do not
give legal advice in a general memorandum such as this, which cannot deal with every
possible exception or qualification to these rules. I want you to be aware, however, of
the seriousness of the limitations issue. Aside from the legal issue of the limitations
periods, time works against you as a practical matter simply because memories fade.
Your memory will be much hazier a year or two later about conversations and the
sequence of events, making it easier for an adversary to trip you up. Putting a claim
together requires a lot of work with an attorney examining you on the facts from various
angles, and it is to your definite advantage to undertake it while the facts are relatively
fresh in your mind.