Securities and Stock Broker Fraud

Disputes frequently arise between investors and their stockbroker. It is best to be proactive if you believe your broker has mismanaged your investments. I have the experience and expertise necessary to protect your investments. Among other positions, I served as a federal prosecutor (Special Assistant U.S. Attorney) in the Unites States Attorney’s Office, Securities Fraud Unit in the Southern District of Florida where he prosecuted criminal violations of the federal securities laws. I was also a Senior Attorney with the Enforcement Division of the U.S. Securities Exchange Commission. Years ago, I also represented a major brokerage firm as a partner in a large, national law firm. Over the years, I have successfully represented over 250 clients in securities and investment arbitrations. I have a multi-state securities arbitration practice. I have successfully represented residents of the following states: Maine, Connecticut, New York, New Jersey, Pennsylvania, Maryland, Virginia, Tennessee, North Carolina, South Carolina, Texas, and California.

Essentially all securities broker-dealers (stock brokerage firms) require clients to sign account-opening documents that contain arbitration clauses. The Financial Industry Regulatory Authority (“FINRA”) administers arbitrations between stock brokerage firms and investors. Even if an investor’s written agreement does not require arbitration, if the investor’s dispute is with a FINRA member firm or a registered representative, the client may require the broker to arbitrate the claim (if the client believes that it is strategically advantageous to do so in the case).

FINRA, however, does not have authority over “investment advisers.” Instead, investment advisers register with the SEC. Like with broker-dealers, account-opening documents prepared by investment advisers typically require arbitration for disputes. Arbitration against investment advisors may take place under the American Arbitration Association (“AAA”) system, which is a substantially more costly forum than that provided by FINRA.

Investors’ claims against securities brokers frequently concern the suitability of the investments chosen by the broker, specifically whether an investment was suitable for the investor based upon the investor’s age, health, employment circumstances, needs, and requests. Alternatively, specific investment products may be the focus of the dispute.

When confronted by an investor about their wrongful conduct, stockbrokers and their firms generally contend that, at the time, the investments were not considered risky, or, that the clients wanted risky investments, and sometimes, both. When investors first meet with brokers, the initial pitch by the broker is often, “I’m better than everyone else.” But, after racking up losses, the broker’s response is likely to be, “Everyone lost money.” Account opening documents and proposals are often the only written materials that touch upon the issue. Investors should not allow their brokers to blame them for the decision to sell during precipitous downturns. Generally, investors are simply acting prudently, while the broker is often to blame for the initial decision as to how to invest the funds. The question is, for example, “Should the broker have created a portfolio where the retired client was faced with the prospect of losing their entire portfolio?”

Unrepresented investors who attempt to resolve disputes with the broker-dealers or investment advisers on their own are often met with the response that “we have thoroughly investigated your claims and found them to be without merit.” When confronted with a denial of liability, investment clients who have not retained counsel often give up. Working with me your rights will be protected throughout the arbitration process. Call me today if you want to discuss a stockbroker claim or other claim involving your investments.

Securities Arbitration

Securities arbitration claims typically involve disputes where a customer or investor alleges that a member firm or registered representative breached a fiduciary duty, made a misrepresentation, was negligent, failed to supervise a securities dealer, breached a contract, or omitted facts.

Nearly all contracts between investors and broker-dealers contain an arbitration clause that requires an investor to arbitrate disputes. If your contract contains this type of arbitration provision, also called the “arbitration agreement,” you may not be able to bring your claim in court. Rather, you may be required to arbitrate your claim.

Most securities arbitrations take place under the auspices of the Financial Industry Regulatory Authority (“FINRA”). An investor initiates the arbitration process by filing a “Statement of Claim” with FINRA.  Once this is filed, the investor is called the “claimant.” The parties against whom the claimant files the Statement of Claim – i.e., the stock broker and/or the brokerage firm – are called the “respondents.” An investor may bring a FINRA arbitration against their broker, their brokerage firm, or both.

Investors must file their arbitration claims within six years from the time the events giving rise to the dispute occurred. Although FINRA does not require investors to be represented by an attorney in an arbitration, counsel typically represents brokerage firms. For that reason, consulting with and retaining an experienced securities arbitration attorney, like myself, to represent you in a FINRA arbitration is advised.

The Statement of Claim outlines the details of the dispute, such as the facts, the relevant dates, the names of the people and companies involved, what the claimant is seeking in the arbitration (in other words the “relief” or “damages” sought, such as money, interest, or specific performance of contract terms), and the respondents from whom the claimant seeks relief or damages.

To initiate an arbitration, the investor must also pay the FINRA filing fees, which are based on the amount of the total claim, although it is possible for an investor to obtain a waiver for the filing fees if they can demonstrate financial hardship. In addition, a claimant must file a Submission Agreement, providing FINRA with all of the parties’ contact information. By signing the Submission Agreement, the investor agrees to submit their claim to FINRA and to abide by the arbitrators’ decision on that claim. When the Statement of Claim and Submission Agreement have been filed and the filing fees paid, the arbitration process begins.

The respondents must file an Answer, any supporting documents, and any counterclaims, cross claims, or third party claims, within 45 days from the date they receive the Statement of Claim.

FINRA arbitrations are heard by a panel of one to three adjudicators (called “arbitrators”) who are not “judges” in the courtroom sense, but who, nonetheless, have the authority to issue a decision that is final and binding. Generally, if a claimant seeks $100,000 or less one arbitrator will hear the case and if the claimant seeks more than $100,000, three arbitrators will hear the case. FINRA’s Neutral List Selection System generates lists of potential arbitrators for the parties to choose from. The parties select their arbitrators from the list provided to them from FINRA through a process of striking and ranking the arbitrators.

After the panel of arbitrators is selected, the parties and the arbitrators confer by telephone for an initial pre-hearing conference to set a schedule for the case.  During this conference, the groups sets deadlines for discovery, motions, briefs and agrees to dates for the arbitration hearing.

Before the arbitration hearing, the parties will typically engage in discovery to exchange documents and other information to prepare for the hearing. FINRA has published a Discovery Guide, which contains a list of documents that are presumptively discoverable. The parties may also request other documents and information that are relevant to the case and that may be in the possession of an opposing or adverse party.  If disputes arise during the discovery process, the arbitration panel may hear motions and decide the issue before the arbitration hearing.

During the arbitration hearing, each party generally will have an opportunity to present its argument and evidence, including direct and cross-examination of fact and expert witnesses. The parties may also submit as exhibits any documents they would like the arbitrators to consider as evidence. While the strict rules of evidence that courts employ are not in force in an arbitration, the parties may nonetheless argue that evidence presented by another party shouldn’t be considered in the arbitrators’ decision by objecting orally at the hearing. Once all parties have presented their evidence, each party typically makes a closing statement summarizing the evidence and arguments for the panel.

The arbitrators will issue a written decision within 30 days after the end of the arbitration hearing. The panel’s decision is called an “award,” and it may include ordering monetary damages or other non-monetary relief for the customer or investor. Arbitration is usually confidential and, unlike a court proceeding, any documents filed are generally not  available to the public. However, if an arbitration award is issued (i.e., the case does not settle before the panelists issue an award), FINRA will publish the award in a publicly available database online.

I have successfully represented many investors nationwide throughout the securities arbitration process. If you believe you have a claim against your stockbroker or investment broker, contact us to discuss your options.

Financial Fraud Case Preparation

When our firm takes a securities fraud case, I evaluate the claim from all possible angles. I start by gathering all of the documents and related information about the client’s account and about the securities purchased for the client’s account by his or her stockbroker. With this material, I analyze the stock portfolio; the nature of securities purchased for the portfolio; the turnover of the portfolio; costs and fees charged to the client’s account; the client’s financial background; and all public disclosures available to the broker at the time of purchase and thereafter. I then compare this information to the investors’ contract with the stockbroker. I consider the investments made by the stockbroker in light of the information the investor provided to the stockbroker about the client’s income, net worth, investment timeframe, and how much risk the investor was comfortable with. I also gather as much information as possible about the securities broker and the broker’s handling of the client’s account. In particular, we will seek to obtain through discovery the securities broker’s email and other communications about the account and information about other similar conduct by the broker in handling other clients’ accounts.

Once I have gathered all of this information, I evaluate the claim to determine whether the broker engaged in wrongful or inappropriate behavior. If so, we will then calculate appropriate damages. I have extensive experience analyzing and valuing complex investment cases. As a result, I am often able to make a determination on a client’s losses and reach a damages figure for arbitration without engaging a valuation expert. However, if necessary, we may also send the portfolio to an expert economist to obtain a more exact projection of the client’s actual losses.

After I have determined the appropriate damages figure, I will proceed with the securities arbitration process by filing a Statement of Claim and commencing an arbitration. Based on the facts of the case and the stockbroker’s behavior, we will also consider whether it is appropriate to request punitive damages, and attorneys fees in addition to monetary losses.

Fees and Costs

Most often securities arbitration matters are handled on a contingency-fee basis. However, I am open to working out alternative arrangements such as a flat fee with a success fee for certain scenarios (such as if the case is dismissed at an early stage of the dispute), or a sliding contingency fee that is reduced if the case settles early. I am also open to blended fee arrangements, i.e., mixing a low hourly fee with a lower percentage contingency fee. In general, the overall payment system for any given matter is based on estimates of how much the case is likely to cost in total. Our firm is totally committed to working with our clients to find payment systems that work for both of us.

As in all arbitration matters, the client remains responsible for any costs associated with the case evaluation, including the research process the firm undertakes when determining whether it will take the case. These costs may include charges for expert analysis or for copying account statements.  However, we will not incur material expert fees without consultation with the client. After the firm accepts a case, regardless of the attorney’s fee arrangement, the client is responsible for the costs and expenses of the arbitration, such as the arbitration hearing fees, transcript fees, expert fees, and photocopying fees.