Not all losses suffered in an investment account are the fault of your broker, but many times they can be. We will analyze your specific situation and advise you whether we think that your broker contributed to your losses as a result of negligent or intentional misconduct, including securities fraud. A broker’s misconduct can range from outright fraud to simple negligence or mistake. If we determine that your broker is at fault, we will advise you of your legal options. Often, the proper course of action is probably to file a FINRA Arbitration Proceeding against your broker and the firm that employed him/her.
FINRA is the “Financial Industry Regulatory Authority.” FINRA is a non-governmental regulator of securities firms that focuses on investor protection and market integrity through effective and efficient regulation of the securities industry. It helps write securities rules and guidelines and enforces them in the U.S. FINRA also administers the largest arbitration forum (with more than 70 hearing locations) designed to resolve securities-related disputes between and among investors, securities firms, and brokers.
Investors can learn more about FINRA at www.finra.org
FINRA Arbitration is a legal proceeding designed to address disputes between investors and their brokers or the firms that employ the brokers. It is similar to a trial in court, but instead of having a judge and jury, your case is decided by one or more arbitrators. Arbitrators tend to be lawyers, accountants, professors, bankers, brokers, or other professionals. They review the law and evidence presented by the parties and render a final, binding award.
FINRA charges a filing fee based on the amount of the claim. For example, a claim worth between $50,000 and $100,000 costs $957 to file, while a claim worth over $5 million costs $2,250 to file. If a case settles, a portion of the filing fee is typically refunded by FINRA. In most agreements with our clients, we will agree to advance all costs of the arbitration (including the filing fees) subject to a right of reimbursement from anything received by award or settlement.
“Selling away” is when a broker or investment professional sells, or solicits the sale of, investment products not offered by his or her respective brokerage firm. The sale occurs “away” from the brokerage firm. Most firms have an “approved product” list that contains the names of products that the firm’s representatives are allowed to sell to their clients because the products have undergone some form of due diligence by the firm or by a third party on behalf of the firm. A broker is generally engaging in “selling away” if he or she sells or tries to sell a product that is not on the firm’s approved product list.
The types of products that are typically sold away from a firm are private placements or other non-public investments, such as investments in real estate developments or alleged start-up companies. Sometimes the investments are legitimate and other times they are a part of a fraudulent scheme designed by the broker or a third party.
Churning is excessive trading in a customer’s investment account in order to generate additional commissions for the broker.
When a broker purchases or sells an investment without the client’s knowledge and permission, this constitutes unauthorized trading. Brokers generate commission by executing trades, and often a broker will buy or sell an investment without the investor’s knowledge in order to generate an additional commission or to place the investor into a product that the client would not approve because it is riskier than the investor’s wishes.
Unless (i) your broker has obtained a written authorization from you to engage in discretionary trading (i.e., trading in a customer’s account without first consulting with the customer) and (ii) your broker’s firm has approved that trading relationship between you and your broker, your broker is not permitted to buy or sell securities in your account without your express approval.
Elder financial abuse (or financial exploitation) occurs when a person steals, mismanages or conceals an elderly person’s funds, property or other assets for personal gain. Elder financial abuse committed by brokers or investment advisers may include unnecessary sales of annuities, Ponzi schemes, pyramid schemes, the promise of unrealistic investment returns, sales of illiquid / high-commission products, churning, etc.
We typically handle securities arbitrations on a contingency fee basis. If you do not recover anything, you do not owe us any legal fees. If you do recover all or a portion of your claim by way of a settlement or arbitration award, however, you are responsible for paying us a percentage of the amount recovered.
Most new account forms (or contracts) with a brokerage firm contain a provision known as a “Pre-Dispute Arbitration Clause” requiring investors to pursue any claim or dispute against the firm or the broker working for the firm in FINRA arbitration rather than in court. While you do lose the right to a jury in arbitration, there are other differences between arbitration and court that can make arbitration more advantageous.
FINRA’s rules provide that the arbitration proceeding will take place at the FINRA location “closest to the customer’s residence at the time of the events giving rise to the dispute.” FINRA offers 72 hearing venues, including at least one in each state of the United States, one in San Juan, Puerto Rico, and one in London, UK.
Both mediation and arbitration are alternatives to litigation in court, and both involve the assistance of a neutral independent third party. They differ in that arbitration typically involves a final, binding decision by an arbitrator, and mediation typically involves a non-binding recommendation to the parties on how to resolve their dispute.
Securities fraud is broad term that encompasses broker fraud and investment fraud. It generally occurs when a broker or financial advisor misrepresents or omits information that an investor needed to make an informed decision about an investment strategy, and it can range from a Ponzi or pyramid scheme to a broker making unauthorized trades or excessive trades.
Yes, brokers are responsible for their actions and the mishandling of their customers’ investments even if the brokers’ conduct does not amount to “fraud.” For example, brokers are responsible for recommending only investments that are “suitable” for their customers. Brokers (and their firm) can be held liable for the recommendation of unsuitable investments.
Prior to selling an investment product to a customer, a broker must perform both a “reasonable-basis suitability” analysis and a “customer-specific suitability” analysis. The reasonable-basis suitability analysis requires the broker to determine that the investment is suitable for at least some investors. The customer-specific suitability analysis requires the broker to determine that the investment is suitable for a specific customer. This analysis typically requires a broker to analyze the investment with the specific customer’s investment profile in mind, including his or her age, other investments, financial situation and needs, tax status, investment objectives, investment experience, investment time horizon, need for liquidity, and risk tolerance, among other factors.
FINRA arbitration has some similarities to a lawsuit, but it is not the same. FINRA Arbitration is a legal proceeding designed to address disputes between investors and their brokers or the firms that employ the brokers. But instead of having a judge and jury (like in a lawsuit), your case is decided by one or more arbitrators. Arbitrators tend to be lawyers, accountants, professors, bankers, brokers, or other professionals. They review the law and evidence presented by the parties and render a final, binding award.
Many people fear that arbitrations strongly disfavor investors because they are too expensive and deprive investors of the opportunity to present their case to a jury of their peers. While it is true that investors cannot present their case to a jury in an arbitration proceeding, FINRA arbitrations offer many potential benefits to investors. Some of these benefits include:
- You select the arbitrators, and the hearing will take place near your home.
- FINRA arbitration is generally relatively quick and inexpensive.
- The discovery process is quick and efficient.
- Arbitrators have considerable discretion regarding what remedies they may award.
- A FINRA arbitration award is much more likely to be “final.”
We typically handle securities arbitrations on a contingency fee basis in which our firm pays the costs in advance and you are not responsible for the payment of any legal fees or costs unless we obtain a recovery. If you do recover all or a portion of your claim by way of a settlement or arbitration award, however, you are responsible for paying us a percentage of the amount recovered and reimbursement of the costs. Costs of a FINRA arbitration can vary widely, but the typical costs include: FINRA filing fees (FINRA charges a filing fee based on the amount of the claim); expert fees; hearing session fees; copying costs; etc.