Utilizing Rescission and Restitution as a Remedy in Actions Against Stockbrokers

Utilizing Rescission and Restitution as a Remedy in Actions Against Stockbrokers

Utilizing Rescission and Restitution as a Remedy in Actions Against Stockbrokers

Many people are surprised to learn that rescission and restitution is an available remedy in an action against a stockbroker who played a significant role in the sale of an investment, notwithstanding that the broker was not the “actual seller” of the security. Silverberg v. Paine, Webber, Jackson & Curtis, Inc., 710 F.2d 678 (1983) (“defendants were not the actual sellers of the stock and therefore must ‘rescind’ by paying an amount they in fact never received, [however] the substantial role played by the defendants in the transaction provides adequate justification for the award.”); see also In re Trade Partners, Inc. Investors Litigation, 2008 WL 3875396 (WD Mich 2008)(remedy of rescission and restitution under the Michigan Uniform Securities Act is available against “solicitor sellers” who “urge[] a prospective purchaser to buy.”); Maybank v BB & T Corp, Branch Banking and Trust Co, 2012 WL 3157006 (D.S.C. 2012)(holding that “statutory seller status” extends to persons “who urge[] the buyer to purchase.”); Massachusetts Mut. Life Ins. Co v Residential Funding Co, LLC, 843 F Supp 2d 191 (D Mass 2012)(“definition [of “seller” under MUSA] includes those who actually transfer title of the securities as well as brokers and other agents of the direct seller.”).

It further surprises people to learn that “[r]estitution includes not only the return of consideration paid [for a security], but, in certain cases, . . . amounts needed to avoid the unjust enrichment of the defendant.” (12A C.J.S. Cancellation of Inst. § 174, Damages—Restitutionary Measure; Consequential Damages). This type of preemptive disgorgement is critical in suitability cases where the chief complaint is illiquidity and where there are no monetary damages (because the investment has gained in value) because it allows the purchaser to force a liquidation at market value, rather than at cost basis.

If you are stuck owning an unsuitable illiquid investment that you want to offload at the higher of the purchase price or the current book or net asset value, Mika Meyers PLC may be able to assist you. Call investor claims attorney Daniel J. Broxup for a free, no-obligation consultation at 616 632 8059.