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January 15, 2012

Sometimes investment firms are held responsible.

An article in today’s “The New York Times” discusses a recent win for two investors.  The securities arbitration panel agreed with the position of the investors.  The investment firm “asked a United States district court to overturn the arbitration panel’s award.”  By filing an appeal, documents in the case became public.  Documents relating to securities arbitration are not available to the public.
The internal documents of the investment firm clearly indicated that the investment was rated a 5, the highest level of risk.
One argument the investment firm advanced was that the investors were wealthy.  The minimum investment was $500,000.  The argument is that wealthy investors are sophisticated and “…know a gamble when they see one.”  Another argument is one that I have heard many times in the last few years.  This argument is that the investor signed the “…subscription agreement in which they expressly acknowledged the risk associated with the investment.”  
“Customers might have known what they were getting into if they’d known about the 5 rating.

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