Securities Arbitration Lawyer

When a stockbroker’s conduct results in financial losses to a client’s investments, they may be liable for investment fraud. 

But what exactly is investment fraud, and how do you recover when it happens to you?

In an ideal world, brokers entrusted with managing financial assets of their investor clients would never fraudulently mismanage those funds. Unfortunately, however, investment fraud inevitably does occur. 

When this happens, it is important to know what steps you can take to begin the process toward recovery. In many cases, the best way to recoup your losses is to pursue a securities fraud lawsuit against the brokerage firm. However, depending on your circumstances, arbitration may be a better choice. In fact, many investor agreements contain an arbitration clause that requires you to take your fraud claim to arbitration.

Securities arbitration attorney Robert Wayne Pearce is dedicated to representing defrauded investors. He can help you understand the securities arbitration process and your options to recover funds that your broker improperly invested. Contact The Law Offices of Robert Wayne Pearce, P.A., today to begin the process toward recovery. 

Types of Securities Fraud

Before discussing the securities arbitration process, it is important to have an understanding of what types of securities fraud exist. That way you can better recognize when you may be a victim of securities fraud. This will help you determine whether you may seek arbitration against the brokerage firm in the first place. 

As a general matter, even if your individual stockbroker was the party that committed misconduct or negligence, you will be able to seek recovery from the brokerage firm that employed them. 

Common examples of securities fraud by a broker that may give rise to a claim against the brokerage firm include:

• Recommending investments that are unsuitable to the investor in light of his or her specific circumstances; 
• Lack of diversity and over-concentration of investment funds; 
• Unauthorized trading; 
• Misrepresentation or omission of material facts as they pertain to potential investment transactions; 
• Intentional misappropriation and conversion of a client’s investment funds; and
• Excessive trading of securities, also known as “churning.” 

If you have questions about whether your broker has committed securities fraud, contact a securities arbitration lawyer today. 

When Can a Brokerage Firm Be Liable for the Securities Fraud of an Individual Broker?

Your stockbroker may be responsible for the fraudulent conduct. However, he or she is not necessarily the only party liable for your investment losses. 

In some cases, the entire brokerage firm that employs the stockbroker may be legally responsible for the individual broker’s misconduct. This is because state and federal laws require brokerage firms to supervise the activities of their employees. 

Generally speaking, individual stockbrokers commit fraud in an effort to earn more money. As brokers earn more money, their brokerage firms also earn more money. Thus, brokerage firms and their individual brokers have similar interests. 

For this reason, brokerage firms must have compliance officers and supervisory personnel. These parties are responsible for discovering and preventing fraudulent activity perpetuated by their stockbrokers. 

The brokerage firm has an independent duty to ensure that its brokers are not committing fraud. When the firm fails to monitor and discover fraudulent misconduct of its brokers, the firm itself has failed its obligations. 

When you have a claim for stockbroker fraud, you can almost always sue the brokerage firm as well. A common claim is that the firm failed to adequately supervise the stockbroker, which allowed the fraud to continue.  

Failure to supervise is a type of liability addressed specifically by the Financial Industry Regulatory Authority (FINRA). Pursuant to FINRA Conduct Rule 3110, a brokerage firm must maintain and implement a system to supervise its individual brokers associated with the firm. 

If the brokerage firm fails to comply with its supervisory responsibilities, resulting in fraud by one or more of its brokers, you may have a claim for relief.

Step 1: File Your Claim with FINRA

To begin your FINRA arbitration, you must first file your initial claim. This claim, referred to as a Statement of Claim, should include the facts and details involved in the dispute, the names of the parties, and the relief you are requesting. 

At the time of filing, the claimant must also submit a Submission Agreement and pay the requisite filing fees.

Step 2: Filing of the Answer By the Opposing Party

After you file your Statement of Claim, FINRA serves the other party with the claim. The opposing party then has 45 days to file an answer to the claim. This answer must include any relevant facts and defenses. 

Step 3: Selecting an Arbitrator 

Before proceeding with the arbitration, you must select an arbitrator. 

FINRA will provide the parties with a list of qualified arbitrators. From this list, the parties must select an agreeable arbitrator. During this selection process, parties may object to potential arbitrators for certain reasons, such as bias or financial interest in the subject matter.

Step 4: Pre-Hearing Conference 

The parties and arbitrator(s) will then meet for a pre-hearing conference. At this conference, the parties will set dates for the evidentiary hearing, discovery, briefing and motion deadlines, and other scheduling issues. 

Step 5: Discovery 

FINRA-specific rules govern the arbitration discovery process. 

Discovery is the process by which the parties exchange relevant documents and information pertaining to the case. The parties to the arbitration must cooperate with each other and can face sanctions for failing to do so. 

This process can be crucial for the investor, as the brokerage firm will typically have important evidence that they must provide in discovery that may be helpful for your claim. 

Step 6: Arbitration Hearing 

A FINRA arbitration hearing is essentially a small trial. 

Both sides will make an opening statement, present their facts, call witnesses for testimony, introduce evidence, present motions to the arbitrator, and make a closing statement. 

The investor must establish their case against the broker and/or brokerage firm for securities fraud, while the opposing side will attempt to present defenses to the claims.

Step 7: Decision 

Finally, after hearing the facts and evidence presented by both sides, the arbitrator has 30 business days to make a decision. 

The arbitrator publishes the final decision, which must include the amount of damages awarded, assessment of costs and fees against the parties, a statement of the issues that were resolved, and any other necessary information. If you are successful, the broker has 30 days to pay the full amount of the award.

It is important to note, however, that FINRA arbitration is binding. Parties can only challenge arbitration awards in very limited circumstances.