Bond Fraud Attorney

Bonds Are Not Always Safe. When a Broker Tells You They Are, Pay Close Attention to What They Do Not Tell You.

Many investors hold bonds because they were told bonds were safer than stocks, that they would preserve capital while generating income, and that fixed income was the right choice for their investment profile. Those general statements may be true of investment-grade bonds from creditworthy issuers. They are not true of all bonds, and brokers who recommend bond investments without disclosing credit risk, call risk, interest rate risk, liquidity risk, or the firm's markup on the transaction have violated their professional obligations.

Bond fraud takes many forms. Some involve outright misrepresentation of credit quality or issuer financial condition. Others involve the systematic overcharging of retail customers through undisclosed markups that would never be acceptable if they appeared as explicit fees. Still others involve the recommendation of concentrated positions in high-yield or speculative bonds to investors whose risk tolerance and investment objectives made those recommendations entirely inappropriate.

Rules Governing Bond Sales and the Obligations Your Broker Violated

• FINRA Rule 2121 (Fair Prices and Commissions): Requires that prices charged to customers in bond transactions be fair, taking into account all relevant circumstances. Markups must be reasonable relative to the prevailing market price of the security.
• FINRA Rule 2010 and the 5% Markup Policy: FINRA's 5% markup policy provides general guidance that markups of more than 5% on bond transactions are presumptively unreasonable, though the actual standard is fact-specific and lower markups may also be excessive depending on the circumstances.
• Regulation Best Interest: Requires brokers to act in the retail customer's best interest when recommending bond purchases, including conducting a suitability analysis that accounts for credit risk, interest rate risk, liquidity, and the customer's investment objectives and risk tolerance.
• MSRB Rule G-17 (Municipal Bond Fair Dealing): For municipal bond transactions, the Municipal Securities Rulemaking Board requires dealers to deal fairly with all persons and prohibits deceptive, dishonest, or unfair practices in connection with municipal bond sales.
• FINRA Rule 2111 and the Concentration Standard: Concentrating a client's portfolio in a single bond issuer, sector, or geographic region without adequate disclosure of the concentration risk violates suitability standards regardless of the quality of the individual bonds selected.