Legal remedies for investment losses.

After posting big gains in 1993, the stock market lost ground in 1994. Unaccustomed to negative returns, disgruntled investors, many of them novices who fled low-yielding certificates of deposit for the greener pastures of the stock market, are blaming their losses on their banks, brokers, and financial advisors. When do you have a case for legitimate complaint, and, if you do, what are your legal remedies?

According to the Institute of Certified Financial Planners, it is important to understand that losing money in an investment is not necessarily grounds for legal action. Even well-run mutual funds and sound stocks and bonds can lose money, particularly over short periods of time. Nevertheless, investors sometimes are taken advantage of, and they may have legitimate grounds for complaint, such as:

Unsuitable investments: A broker or investment advisor putting a 75-year-old window's life savings in an aggressive growth mutual fund generally would be considered giving unsuitable advice for her goals and situation. The risks of an investment and its potential for loss must be disclosed fully.

Misrepresentation. Sometimes, the performance of an investment is represented as similar to another ("just like a CD") when in fact it is quite different (and often riskier). Educate yourself about investments.

Churning. Excessive buying and selling of a client's portfolio just to reap sales commissions is considered churning. In general, are you paying more in commission than you are earning in gains, or do you have to earn high gains just to cover commissions?

Unauthorized trading. Brokers can not trade in your account without your permission, but investors too often unknowingly give their broker written blanket authorization when they open their account. Use caution...