Negligence is a failure to use due care under the circumstances. In the context of a securities case, negligence is a failure to exercise the care required of a reasonable investment professional under the circumstances. In most cases of investment or securities fraud or misconduct, the investor must prove that the investment advisor intended the conduct that caused the loss. To prove negligence, it is not necessary to prove intent. The investor need only prove that the investment advisor was careless or negligent. One example of investment advisor negligence may be the recommendation of investment in a stock that turns out to be a fraud. A reasonable investment advisor would investigate a stock before recommending its purchase. Another example of negligence might be the failure to diversify a client’s portfolio since most investment advisors would agree that a diversified portfolio is safer than a portfolio over-concentrated in one or two stocks.
Negligence is a cause of action normally joined with other causes of action. It could be that an investment advisor engaged in intentional misconduct. However, if intent cannot be proven, the advisor’s negligence may nevertheless provide a basis for recovery.