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  • Attorneys David Meyer and Matthew Wilson have been selected to the list of Super Lawyers since 2011 and 2015 respectively.

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  • Attorney David Meyerhas been selected to the list of the Best Lawyers in America® for Mass Tort Litigation / Class Actions – Plaintiffs and Professional Malpractice Law – Plaintiffs every year since 2011.

Securities Based Lending Scams

Securities based lending has become a booming business on Wall Street in recent years, but before customers enter into these lending arrangements, they need to understand the substantial risks involved, including having to sell all of your stocks and pay back the loan in the event of a market downturn.

Many stockbrokers sell their customers on the idea of securities based lending as a way to borrow money by using the stocks in their account as collateral. Customers are enticed with the low interest rates and the ability to borrow anywhere from 50 to 90% of their portfolio stock value. The only restriction is clients are not permitted to use the borrowed funds to buy more stock like a margin loan.

This sounds all well and good, and many borrowers see securities based lending as a good way to fund cash flow for small business or refinance other debt. But the devil is in the details and unfortunately, many customers don’t appreciate what exactly they are getting themselves into until it is too late. Interest rates on securities-backed loans can change every day. In addition, your brokerage firm may decide that a security that was previously eligible as collateral is no longer available leaving you with less money to borrow.

Importantly, securities-backed loans are demand loans, meaning that the lender may call the loan at any time. If you can’t repay it, the firm can move in right away and sell securities in your account to pay the balance in full. During volatile markets, the value of your stocks could quickly decline significantly and if you don’t have extra cash on hand, then you might be forced to sell your stocks and pay back the loan immediately. Wall Street likes these loans because it is another way for them to make money off the stock that is sitting in your investment accounts.

According to the SEC, between 2012 and 2014, one large brokerage firm reported a 70% increase in its securities based lending while another firm reported an over 50% increase.

Before you agree to a securities based loan, make sure you’ve read the fine print and understand exactly what you’re getting yourself into.

Need More Information?

Investment misconduct can be complex and confusing. That’s why we’re here to help you. Visit our Common Questions page to find in depth answers directly from our attorneys. Get More Answers
Have You Been a Victim of Investment Fraud?

You trusted your financial advisor with your money, but now you're left wondering what went wrong. If you or a loved one suffered losses because of investment misconduct, Meyer Wilson can step in and fight to recover your losses. The team of investment fraud lawyers at the firm has been helping people like you since 1999 by winning judgments, settlements and verdicts worth hundreds of millions of dollars against brokerage firms, financial advisors and banks.

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