Puffing

In the last few months, I have been approached (as have a lot of other lawyers I know) by people who got beat up in the stock market and are looking to recover some of their losses. Frequently, stockbrokers, day traders and investment bankers are the targets of unhappy investors who feel they were duped by investment firms to make bad purchases in order to allow their financial planners the opportunity to trade up from a 50' boat to a 60' one. Now, that the market has adjusted for, you know, reality, it's time to blame someone.

Often, I meet people who believe that their particular broker or whomever tried to oversell a particular security- "This is the greatest," "You'll make a fortune," "Everyone will be buying this." These potential clients tell me that they bought they bought the stock based upon these representations and, lo and behold, it tanked last October. How could they have been so swindled?

I would love to help out these people. It's always nice when your defendant is a financial institution with money and insurance - someone who can pay your judgment and who is negatively perceived by the community (read: the jury) (and my apologies to my friends in the banking industry, but all of the recent jury information available on their perceptions does not rate banks very favorably). The problem is that what the broker told you does not amount to fraud.

Ok, I'll give it a second to let the shock of that wear off. It's true. Fraud requires that the statement made to you be factual in nature (albeit false). It must also be a present or past tense fact - it cannot be a representation of what will or can happen in the future. If this sounds a little like hair splitting that's because it is. I may not falsely tell you that the stock I am trying to sell is valued at $79 a share because it is owned by Bill Gates because this is a factual misrepresentation. I can, however, do my best to be a salesman and tell you that a stock is "red hot" and that there is "no way you can lose" if you buy it. The law considers that ordinary sales talk and is called "puffing."

So, your world of options against stockbrokers and car salesmen just smaller, didn't it?