Source: https://securitiesarbitrations.com/bad-investment-strategy-not-stock-fraud-bankruptcy/
Timestamp: 2019-04-20 16:57:03+00:00

Document:
Sarbanes Oxley Act of 2002. 11 U.S.C. § 523 (a)(19)(July 2002).
However, on November 6, 2017,Chief Judge Susan V. Kelley of the Federal Bankruptcy Court for the Eastern District of Wisconsin held that a stockbroker whose conduct was “unprofessional and unresponsive” to an investor but not false or fraudulent, can still wipe out their debts in bankruptcy. In re Butler, 2017 BL 398139, Bankr. E.D. Wis., Case No. 17-22141-SVK Adv. No. 17-02169, Nov. 6, 2017.
In Butler, Jeffrey Lane Butler was a stockbroker registered with a number of securities broker-dealers. FINRA Public Disclosure also shows that Butler was also subject to a number of customer complaints over time.
Susan Dorsch was one of Butler’s clients or customers.
According to Dorsch when she agreed to open an account with Butler, she was near retirement age, and explained to Butler that she needed consistent and stable income from her retirement account so that she could live.
In response to Ms. Dorsch’s concernss Butler told her he was developing a “new investment strategy” that would a be a long-term investment, but in fact “day traded” her account, and purchased and sold shares of “aggressive, high-risk stocks” resulting in significant losses.
Ms. Dorsch filed a complaint with the Wisconsin Department of Financial Institutions which ordered, in the absence of a written contract, that Ms. Dorsch’s advisory fees to be refunded.
Thereafter, Ms. Dorsch filed a securities arbitration claim with the Financial Industry Regulatory Authority or FINRA against Butler and immediately thereafter, Butler filed for bankruptcy.
Securities fraud is defined in section 3(a)(47) of the Securities Exchange Act of 1934. To state a claim for securities fraud under § 10 (b), and Rule 10b-5, as promulgated thereunder by the SEC, 17 C.F.R. §240.10b-5, a private plaintiff must plead that defendants knowingly or recklessly made a false representation or omission of a material fact, and that plaintiff’s reliance thereon was the proximate cause of his or her injury. Kline v. First Western Gov’t. Securities, Inc., 24 F.3d 480, 487 (3rd Cir.), cert. denied, 506 U.S. 934 (1994); Shapiro v. UJB Financial Corp., 964 F.2d 272, 280 (3rd Cir.), cert. denied, 506 U.S.934 (1992); Peil v. Speiser, 806 F.2d 1154, 1160 (3rd Cir. 1986).
The sale or recommendation of “unsuitable securities” is a subspecies of fraud by omission.
Our Banking and Financial Services practice assists financial firms of all sizes. Clients include regional, national, and global institutions in a variety of sectors, from holding companies to banks, savings banks, savings and loans, credit unions, trust companies, mutual funds, and insurance companies.
Michael H. Schaalman of Halling & Cayo, in Milwaukee, Wisconsin and Paul G. Swanson of Steinhilber Swanson LLP, Oshkosh, Wisconsin represented Susan Dorsch. Jeffrey L. Butler represented himself, and certainly did a great job.

References: § 523
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 §240
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