How to sue and recover from a bad investment

Making a false statement of fact. For instance, a seller is pushing a highly volatile product that can generate high returns or big losses but claims that this is a very “safe” investment, like a fixed deposit that earns high interest. This is a common ruse but, in most cases, the vendor will make this remark orally and the unsuspecting customer signs a document that states otherwise. This usually happens to customers who are unable to understand the jargon-laden content of such documents.

The false statement is made with the intention of luring you to take action. This is usually done during the sales pitch, when the seller makes exaggerated and untrue statements as to how the investment product will continue to do well. The sole purpose of doing so is to get you to agree to put money in it.

You must show that you made the investment because you were misled by a false representation. Very often, people make investments for a variety of reasons – the products are sold by a reputable company, the chance of capital appreciation is good and there is a possibility of regular dividends. So you cannot hold the seller responsible if he tells you that this is a risky investment but it is likely to give you good returns because the market is recovering. If you suffer losses, you cannot blame the seller for lying; he did warn you that there is risk involved but being overly optimistic in a sales pitch is not exactly making a false statement. But it is a different matter if he tells you that you are putting your money in a “fixed deposit with high interest” when it is not. Similarly, telling you that you can redeem your investment in five years without penalties when you can do so only in 10 years is making a false statement

You must show that you have suffered losses as a result of relying on the false statement. Of course, no one will kick up a fuss if they have made money. While showing that you have suffered losses is easy, proving that the seller misled you with a false statement is usually the most difficult task in any dispute. In many cases, false statements are made orally but the victims are made to sign documents of entirely different products. The culprits will usually deny making those statements and it is up to you to convince the court that they did. One way to avoid such disputes is to get the sellers to highlight the terms in the contract that support what they say and make them sign next to these clauses. Another way is to make your own notes on the documents and ask them to sign next to them. If the seller is unable or unwilling to do both, it is a clear sign that his sales pitch is patently false

The vendor who makes the statement must know that he is lying or wilfully know that it is false. To be fair to vendors of financial products, they can sometimes make “honest mistakes”. Perhaps they sold you a safe product from a reputable company that suddenly collapsed due to mismanagement. In such cases, the sellers are probably not liable unless they have prior knowledge that the investment they are promoting is facing financial ruin but they still recommend it just to make commission. Investors who have sued successfully to recover losses are usually those who bought products that were sold with patently false statements, such as paying for X when they have been sold Y.