If you find yourself reading this article, it’s likely because you’re going through a forced liquidation.
Forced liquidation, sometimes referred to as forced selling, is the process by which an investor is forced to sell their assets, typically by a broker or financial advisor, in order to meet margin calls or repay debts.
In this guide we will go over what forced liquidation is, how it works, and what you can do if you find yourself in this situation.
What is Forced Liquidation?
Forced liquidation, also known as forced selling, occurs when an investor is forced to sell their assets or securities, typically by a broker or financial advisor, in order to repay debts or meet margin calls.
Investment Losses? Let’s talk.or, give us a ring at 561-338-0037.
The term “forced liquidation” usually refers to the involuntary sale of assets, but it can also refer to the situation where an investor is given a choice between selling their assets or having them sold by the broker.
Forced liquidation often happens when an investor has been unable to meet a margin call or has failed to repay debts.
When this occurs, the broker or exchange will take possession of the assets and sell them in order to recoup the money that is owed.
How Forced Liquidation Works
If you find yourself in a forced liquidation situation, it’s likely because you have failed to meet a margin call or have been unable to repay debts.
When this occurs, the broker or exchange will take possession of the assets and sell them in order to recoup the money that is owed.
In most cases, the assets are sold at a loss, which can be significant.
Forced Selling within a Margin Account
If you have a margin account, your broker may force you to sell your securities if the value of your account falls below the minimum required amount.
Within a margin trading account, this is known as a margin call.
Your broker or advisor will typically give you a set period of time to bring your account up to the minimum value, and if you are unable to do so, they will sell your securities to repay the debt.
It’s important to note that you may not be able to control which securities are sold, and you may not be able to get the same price for them that you paid when you purchased them.
Forced Selling within a Securities-Backed Lines of Credit
If you have a securities-backed line of credit (“SBL”), your broker or financial advisor may force you to sell your securities if the value of your account falls below the minimum required amount.
Your broker or advisor will typically give you a set period of time to bring your account up to the minimum value, and if you are unable to do so, they will sell your securities to repay the debt.
It’s important to note that you may not be able to control which securities are sold, and you may not be able to get the same price for them that you paid when you purchased them.
Investment Losses? We Can Help
Discuss your legal options with an attorney at The Law Offices of Robert Wayne Pearce, P.A.
or, give us a ring at (800) 732-2889.
What is margin call?
A margin call is a demand from a broker or exchange for an investor to deposit more money or securities into their account.
Margin calls are typically made when the value of the securities in an account falls below a certain level, known as the margin requirements.
If an investor fails to meet a margin call within the grace period, the broker or exchange has the right to sell the securities in the account in order to cover the shortfall.
Can a Broker Liquidate an Investor’s Account without Notice?
Some investors learned the hard way the true meaning of “forced liquidation” when their brokers sold their securities without much warning in order to meet margin calls.
In most cases, brokers will give investors a grace period to meet margin calls, and they are not required to sell the securities in an account without notice.
There can be cases where a broker may sell securities without notice (a “Blow-Out), with the investor suffering substantial investment loss, this is typically only done in the most extreme cases where there is a fear of an imminent market crash and the broker wants to protect their own interests.
We have heard from many investors that when they complained to their respective brokerage firms, they were told that they signed contracts that allowed the broker-dealers to do exactly what they did to them and that they had no recourse.
Without doubt, contracts with those onerous contract conditions were signed, but that does not mean that the terms of the contract are enforceable.
Can You Take Legal Action After a Forced Liquidation?
If you have been the victim of a forced liquidation, there may be legal action that can be taken against a broker-dealer for breach of fiduciary duty and other causes of action.
You may not have recourse for the issuance of margin calls and/or forced liquidations of all or some of your securities on short notice or no notice at all, but that doesn’t mean that the broker-dealer did nothing wrong.
IMPORTANT: The most important question to ask is: what happened when the securities-backed line of credit and/or margin accounts were recommended by your broker or financial advisor to be opened in the first place. Depending on the situation that led to you opening up your securities-backed line of credit and/or margin accounts, you may have legal action you can take to help recover your investment losses.
In some cases, the recommendation to open the account may have been unsuitable for you.
In other words, if your broker or financial advisor recommended that you open an account that was too risky for you given your investment profile, then they may be held responsible for the losses that you incurred as a result of the forced liquidation.
We’ve Helped Investors Who’ve Suffered Losses Due to Forced Liquidation
The securities fraud attorneys at the Law Offices of Robert Wayne Pearce, P.A., have represented many investors who have suffered from this kind of abuse. If you are interested in learning more about these type of cases, you may want to read the following articles:
- Investors With “Blown-Out” Securities-Backed Credit Line and Margin Accounts: How Do You Recover Your Investment Losses?
- Securities-Backed Lines of Credit Can Be More Dangerous Than Margin Accounts!
- UBS Financial Services, Inc. Sued For Florida and Ohio Financial Advisor’s Alleged Misconduct Involving a Credit-Line Investment Strategy
- J.P. Morgan Sued for Edward Turley and Steven Foote’s Alleged Margin Account Misconduct
We would be glad to discuss any of these cases and more importantly, your case, with you. Please contact us for a free consultation at 561-338-0037 or fill out one of our short contact forms.
Our Proven Results in for Investors
Attorney Robert Pearce has represented hundreds of investors over his 40 year career and in the last 20 years alone recovered over $175 million for his investor clients. Mr. Pearce has recovered funds for over 99% of his investor clients through court litigation, arbitrations and settlements.
The Law Offices of Robert Wayne Pearce has represented investors across the globe and throughout the United States.
If there is a way to recover your investment losses, our team at the Law Offices of Robert Wayne Pearce will find it.
Get Your Free Consultation with an Attorney that Understands Credit-Line & Margin Accounts
If you have lost money as the result of a forced liquidation, we would be happy to talk with you about your case and your potential legal options.
Please contact us today for a free consultation at 561-338-0037 or fill out one of our short contact forms.
If we accept your case, there will be no attorney’s fee or arbitration expenses unless we recover funds for you in a settlement or through an arbitration award.
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