Broker-Dealers and Stockbrokers have a Duty to Protect Seniors from Financial Exploitation

Protecting seniors from financial exploitation requires a collaborative effort between the government and financial experts. In general, securities brokerage firms and their stockbroker employees have a fiduciary duty to their customers. FINRA rules also establish a broker-dealer and stockbroker’s responsibility to protect seniors from financial exploitation by others. Unfortunately, the financial exploitation of seniors is a growing problem. If you or a family member believes you were taken advantage of by your stockbroker, investment advisor or another financial professional then you need to speak with a skilled investment fraud attorney right away. Based in Boca Raton, the legal team at the Law Offices of Robert Wayne Pearce, P.A., has years of experience representing clients for various types of investment, securities, and commodities fraud. We have handled hundreds of JAMS, FINRA, and AAA securities mediations and arbitrations for clients across the country and even some international clients. Financial Exploitation Is Elder Abuse According to the National Adult Protective Services Association, financial exploitation is a type of elder abuse on the rise. It covers the abuse of seniors and adults who have disabilities. This type of abuse usually involves trusted people in a person’s life, such as stockbrokers, investment advisors, other financial professionals, trustees, guardians, caretakers, neighbors, family members, and friends. This abuse happens because many seniors simply cannot protect themselves any longer. They are more trusting and relying on others. They are incapable of detecting fraudulent schemes. It is difficult for them to understand the nature, mechanics or risks of investments being offered and sold to them. Many cannot even read or comprehend the account statements or confirmations sent to them. So they allow others to manage their financial affairs and some of those people they trust and rely upon financially exploit them. There are numerous types of investment fraud perpetrated upon seniors. Some of the most common abuses and scams by stockbrokers, investment advisors and other financial professionals include: Getting seniors to allow fraudsters access to and/or management of their bank and/or brokerage accounts; Telling seniors to write personal checks to stockbrokers, investment advisors and other financial professionals to supposedly make investments not available through the brokerage firm; Taking money from seniors in exchange for worthless promissory notes or notes the fraudster has no intention of ever re-paying to the senior; The offer and sale of unsuitable complex structured products, alternative and non-conventional investments for the high commissions paid on those investments; Advising seniors to take out reverse mortgages or equity lines and use the proceeds to trade securities; Other scams that pressure a senior to use the equity from their reverse mortgage or equity line (or other liquid assets) to purchase an expensive variable universal life insurance policy, variable annuity, or indexed annuity with high commissions, high surrender fees, expensive riders and  that may not even mature until the senior is around 90 or 100 years old; Investments or securities schemes, such as Ponzi or pyramid schemes, promising unrealistic returns; Investments involving an unlicensed dealer. Victims of financial exploitation can experience all the same effects as someone who has endured another type of abuse, including depression, loss of trust, and feelings of shame. Financial Industry Regulatory Authority (FINRA) Recent rule changes to the Financial Industry Regulatory Authority (FINRA) went into effect in February 2018. These significant rule changes help establish additional protections for senior citizens. The two notable changes are FINRA Rules 2165 and 4512. FINRA Rule 2165 The SEC adopted new FINRA Rule 2165, which is the Financial Exploitation of “Specified Adults.” This rule will permit members to place a temporary hold on securities or disbursements of funds from an account when there is suspected financial exploitation. If a financial broker reasonably suspects that there is financial exploitation, then they can withhold disbursement. However, the rule does not create an obligation to stop the disbursement. Instead, it provides the right for brokers to do so. Stockbrokers should be proactive and look for potential abuse, so they can stop it early on, helping protect unsuspecting senior investors from becoming victims. Rule 2165 defines specified adults as particular investors who are most at risk for financial exploitation. That includes the following people: Someone who is 65 years of age or older; and Someone who is 18 and older that the broker has reason to believe has a physical or mental impairment that renders the investor unable to protect their own interests adequately. Brokers also have to know what the rule defines as financial exploitation. One example is the unauthorized or wrongful withholding, taking, use, or appropriation of a specified adult’s securities or funds. Financial exploitation can also be any act or omission made through someone’s guardianship, power of attorney, or any other authority with the purpose of: Converting the specified adult’s assets, money, or property; or Obtaining control of the specified adult’s property, money, or assets through the use of intimidation, deception, or undue influence. Rule 2165 allows a broker to put a temporary hold on suspicious disbursements but not on ones that do not appear to be related to the financial exploitation of seniors. The rule does not apply to transactions in securities, such as a customer’s order to sell their share of stocks. But it could apply to a request by the investor to disburse shares out of their account. FINRA Rule 4512 The SEC also adopted FINRA Rule 4152, which concerns customer account information. Under this amended rule, members must make reasonable efforts to obtain a name and contact information for an investor’s trusted contact person on their account. Investors should have a trusted contact listed whom the stockbroker can reach out to and disclose pertinent information about an account. They can also disclose health status and even ask about the client’s whereabouts if the broker cannot reach them directly. Stockbrokers can get a trusted contact name when opening the account or when updating information for accounts established before the effective date of Rule 4512. The amendment requires the broker to disclose in writing or electronic documentation...

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The Most Common Types of Investment Fraud

A clever investment scam can trick even the most experienced investors. Diligent research before handing over your money is one of the best ways to avoid an investment scam. In addition, knowing the signs of common types of investment fraud will help protect your investments and save you time and money in the long run. There are six common investment scams. Ponzi Schemes One of the most well-known types of investment fraud is the Ponzi scheme. In a Ponzi scheme, the fraudster attracts early investors with the promise of an unusually high rate of return. Instead of investing this money, however, the fraudster pays the early investors using money from new investors, who are paid by newer investors, and so on. Because a Ponzi scheme relies on new investments to pay existing investors, this kind of scam requires a steady stream of new investors to work. As soon as the fraudster is unable to secure new investments, or if too many investors try to withdraw their investment at the same time, the scam will fall apart. Pyramid Schemes Another well-known investment scam is the pyramid scheme. Pyramid schemes are similar to Ponzi schemes in that early investors are paid using money from later investors. The main difference is that the scam is organized in a pyramid structure. To start a pyramid scheme, a fraudster will promise to turn a small investment into a large return. Each investor in the first group is offered the opportunity to make more money by recruiting their own investors. Every time a new member joins, a portion of their investment travels up the chain. As the number of recruited investors grows, the organization of the scam begins to look like a pyramid with the fraudster on top. As with a Ponzi scheme, the continuation of a pyramid scheme depends on a steady stream of new investors; if no new investors want to join, the scam will quickly fall apart. Advance Fee Fraud Advance fee fraud is a less well-known but common type of investment fraud. According to the FBI, the fraudster in an advance fee scheme asks victims to give “advances” to the fraudster on the promise that they will receive large gains in the future. These advances are usually in the form of taxes or processing fees. Like with other investment scams, there is no legitimate investment underlying the fraud; rather, the fraudster takes the advance fees and disappears without providing any return to the victims. High Yield Investment Frauds Ponzi schemes, pyramid schemes, and advance fee frauds all have one thing in common: the promise of high rates of return with little to no risk. While those three types of investment fraud are the most common, this same kind of promise exists in other scams involving real estate, stocks and bonds, minerals, and a number of other asset types. If you receive an unsolicited offer for a high-return, low-risk investment that seems too good to be true, it probably is. “Pump and Dump” Scams “Pump and dump” refers to the way a fraudster manipulates the stock market in this kind of scam. The fraudster will buy many shares of a low-priced stock in an unknown company and then circulate false information to generate interest in that company. By doing so, the fraudster can “pump up” the price of the stock before “dumping” it at a high price, leaving other investors with the low value stock they purchased on the fraudster’s bad information. Offshore Scams Offshore scams involve companies based outside the U.S. Because these companies are offshore, they are not subject to the same Securities and Exchange Commission regulations as U.S. companies. Fraudsters in these scams may use any of the other methods on this list to manipulate U.S. investors. How to Identify Common Types of Investment Fraud Fraudsters will dress up an investment scam in clever ways to make you think it is legitimate. However, no matter what it looks like on the surface, there are some warning signs to look out for: The seller promises very high returns on investment; The seller assures you that the investment is very low risk; You did not contact the seller or request information about the investment (it is unsolicited); The seller asks for personal or confidential information, like your social security number or credit card information; and You feel pressured to invest as quickly as possible by the seller. If one or more of these factors are present, you are almost certainly dealing with an investment scam. No matter how good or time-sensitive an offer may seem, always take the time to research the investment. Are You the Victim of an Investment Scam? If you’ve lost money to an investment fraud scheme, don’t be embarrassed. In our 40 years of experience, we’ve worked with investors of all levels who have lost money to a sophisticated investment scam. Our investment fraud attorneys will assess your case and help you recover as much as possible. Contact us today for a free consultation.

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What Is a Breach of Fiduciary Duty and How Can You Prevent It?

As an investor, you may have heard that your financial advisor has a “fiduciary duty” toward you. You may also have heard that breaching this duty can result in sanctions or other penalties for your financial advisor. The relationship between you and your financial advisor is special because you are relying on them for advice about your finances. As your wealth grows, it becomes more and more important to be able to rely on this advice and trust that your financial advisor is only doing what is best for you. The law recognizes this by imposing special obligations, called fiduciary duties, on financial advisors. What Is a Fiduciary Duty? The relationship between an investor and a financial advisor is a special kind called a “fiduciary relationship.” A fiduciary is a person that acts on behalf of someone else, called the principal, to the benefit of that principal. A fiduciary duty is a legal responsibility a fiduciary owes to their principal. Depending on the context of the fiduciary relationship, this duty may take different forms. In general, however, a fiduciary must Put the client’s best interests above their own; Avoid conflicts of interests or disclose them when they arise; and Act with honesty, good faith, and loyalty toward the principal. Under the Investment Advisers Act of 1940, only registered financial advisors are fiduciaries. Broker-dealers, on the other hand, are regulated by the Financial Industry Regulatory Authority (FINRA). FINRA Rule 2111 holds brokers to the lower standard of “suitability.” The most important difference between the two is that a fiduciary is required to put their principal’s best interests above their own at all times; suitability merely requires a broker-dealer to make investment decisions that are “suitable” based on their client’s investment profile. What Constitutes a Breach of Fiduciary Duty? In its simplest form, a breach of fiduciary duty occurs when a fiduciary acts in their own interest, rather than in the best interest of their client. A financial advisor can breach this duty in a variety of ways. For example, one of an investment advisor’s primary responsibilities is properly managing their client’s investment account. Part of their fiduciary duty is managing that account with the appropriate level of professional skill. Failing to conduct proper due diligence on an investment or failing to inform their client of an important fact about an investment constitutes a breach of the advisor’s fiduciary duty. Other common examples of an investment advisor’s breach of their fiduciary duties include Using an investor’s funds for the fiduciary’s own personal gain; Engaging in or failing to disclose a conflict of interest; Taking an investment opportunity for themselves, rather than for the client; Commingling an investor’s money with the fiduciary’s own funds; or Engaging in any transaction without permission from the investor. Investors should always pay careful attention to the conduct of their financial advisor to make sure they are acting in the investor’s best interest. What Damages Are Available for a Breach of Fiduciary Duty? If you suffered investment losses because your financial advisor gave you bad advice, you may be able to recover some of those losses based on your financial advisor’s breach of their fiduciary duty. An advisor’s breach of fiduciary duty generally entitles you to damages up to the amount you lost because of the breach. However, the actual damages calculation is often more complex than that. Experienced investment fraud attorneys familiar with fiduciary duty cases can help you determine how much compensation you can receive.  In some cases, you may be able to seek punitive damages from your financial advisor in addition to regular compensation. Rather than compensate the victim, punitive damages punish the wrongdoer. Accordingly, they are usually reserved only for misconduct that is particularly severe. Punitive damages are not limited by your actual losses, so they may be much higher than compensatory damages. How to Prove a Breach of Fiduciary Duty Compared to fraud or negligence, proving breach of fiduciary duty is fairly simple. To succeed on a claim for breach of fiduciary duty, you must prove:  The existence of a fiduciary duty,  A breach of that duty, and A connection between the breach and your losses.  Additionally, your financial losses must be real; in other words, you won’t get compensation based on money you could have made. Similarly, you won’t receive any compensation for your financial advisor’s misconduct if you didn’t actually lose any money. If you’re unsure whether your financial advisor breached their fiduciary duty toward you, contact an investment fraud attorney right away. Our firm can help you assess your relationship to your financial advisor, measure your damages, and help you maximize your recovery. How to Avoid a Breach of Fiduciary Duty As an investor, it is not your responsibility to avoid breaching fiduciary duties. However, you can always protect yourself and your investments by paying close attention to your financial advisor. A vast majority of financial advisors want to do right by you, but because there are some unscrupulous advisors out there, you should always stay alert. Contact an Investment Fraud Attorney Today At the Law Offices of Robert Wayne Pearce, P.A., we have been helping investors recover from financial advisors and brokerage firms for over 40 years. If you believe your financial advisor breached their fiduciary duty, we can help you too. Contact us today for a free consultation.

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What Is Hedge Fund Fraud?

Hedge funds are an increasingly popular investment tool, often suggested as an alternative to other pooled fund investments. However, because the Securities and Exchange Commission (SEC) provides less regulation over them, hedge funds carry a greater risk. Over the past two decades, investors have lost billions of dollars to fraud involving hedge funds. As an investor, it is important to be aware how hedge funds operate and how they can be fraudulent. If you believe you’ve been the victim of investment fraud, contact an investment fraud attorney right away. They can assess your case and advise you on your potential options for recovery. What Is a Hedge Fund? Simple put, hedge funds are a type of investment partnership. Like a mutual fund, a hedge fund is built from the pooled funds of many different investors. These investors give their money to fund managers, who invest it according to the fund’s overall objectives. Hedge funds are an attractive option to many investors because they are more aggressively managed than other investment vehicles. Hedge funds invest in a variety of non-traditional assets beyond stocks and bonds, including foreign currencies, real estate markets, and even derivatives. This kind of investment strategy does have its benefits. At the same time, however, the enormous complexity of hedge funds makes them a higher risk. Investors may not know exactly how their money is tied up at any given time. What Is Hedge Fund Fraud? There is no single way that hedge fund managers defraud investors. Instead, hedge fund fraud can take the form of several common types of investment scam, including: Embezzlement; Insider trading for the personal benefit of the hedge fund managers; Securing an investment through misrepresentations about about the investments within the fund or its promised returns; Securing your investment without properly disclosing the risks of the fund; and Hiding investment losses. Occasionally, a hedge fund covers up an outright investment scam from the beginning. Bernie Madoff’s infamous Ponzi scheme, for example, involved a hedge fund. Many hedge funds are legitimate, but investors must always be wary of who is managing their money. What Are the Signs of Hedge Fund Fraud? As with other types of investment fraud, hedge fund fraud can take a number of forms. In general, however, if the promises made about a hedge fund seem too good to be true, they probably are. No two hedge fund fraud cases are exactly alike, but there are several red flags you can look for. When researching a potential investment, pay attention to Promises of excessive returns; Promises of consistent returns regardless of market strength; Vague or complicated communication about your investment; Whether an independent accounting firm regularly audits the fund; and Whether the fund has a balance of liquid and illiquid investments. In addition, the conduct of a hedge fund manager is a good way to judge the legitimacy of a hedge fund. Unlike brokers at a brokerage firm, hedge fund managers do not receive commissions for the securities they sell. Instead, reputable hedge funds charge a management fee of between 1% and 4% of the total assets managed and a performance fee based on the total profit the fund generates. If you plan to invest in a hedge fund and the manager indicates that they are paid on commission, it’s probably best to stay away. Why Is Hedge Fund Fraud So Common? Hedge funds have two primary characteristics that make them a prime target for investment fraud. First, compared to other investments, hedge funds are relatively unregulated. And second, hedge funds involve larger investments and wealthier investors. Hedge Funds Operate with Less Oversight from the SEC Hedge fund fraud is more common because hedge funds operate with less oversight from the SEC. The SEC requires certain types of investment companies to register with the Commission before commencing operations. As a condition of registration, these companies must file certain reports with the SEC. This additional oversight makes it harder for these regulated investment funds to engage in fraudulent behavior. Hedge funds organize themselves as private investment limited partnerships so that they fall within an exception to these registration requirements. This exception allows hedge funds to operate without registering with the SEC and exempts them from the same mandatory reporting requirements as registered investment companies. Hedge Funds Involve More Money Compared to Other Funds Hedge funds are a common target for investment fraud because they involve investors with a higher net worth than in other pooled funds. Compared to other types of investments, hedge funds require sizable upfront investments to join. What’s more, the SEC permits only accredited investors to trade in unregistered securities. The SEC considers an investor to be “accredited” if they have an individual income in excess of $200,000 per year or a net worth of more than $1 million. In August 2020, the SEC amended the definition of “accredited investor” to include investors that meet certain minimum thresholds of professional knowledge, experience, or certifications. In a sense, accredited investors are those that the government believes are sophisticated enough to make riskier investment decisions on their own. However, even diligent and knowledgeable investors may fall victim to particularly clever investment fraud schemes. Unscrupulous hedge fund managers know this and may see these wealthy investors as an opportunity for fraud. Should I Hire an Investment Fraud Attorney? If you’ve suffered investment losses after investing in a hedge fund, it is important to speak with an investment fraud attorney right away. As an investor, there are a number of legal theories on which you can rely to hold a hedge fund and its managers liable for your losses. For example, even though hedge funds are not required to register with the SEC, hedge fund managers are still investment advisers obligated to act as fiduciaries to their investors. As fiduciaries, hedge fund managers owe both a duty of loyalty and a duty of care to their investors Thus, in addition to claims for misrepresentation, breach of contract, or other theories of liability, hedge...

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How To Recover Your Investments from a Ponzi Scheme

If you are an investor who has suffered investment losses as a result of a Ponzi scheme, you’re not alone. In fact, Ponzi schemes are reaching levels that haven’t been seen in a decade, putting many investors in a difficult position. Losing your hard-earned money to a Ponzi scheme can be devastating. And frequently, it can also be surprising. This is because many investors often don’t realize they’ve fallen victim to a Ponzi scheme until it’s too late.  While this can be difficult to process, know that it’s not the end of the road. There are ways that you can fight to recover your investments.  If you need help figuring out how to recover from a Ponzi scheme, the Law Offices of Robert Wayne Pearce, P.A., is ready to help. Investment loss attorney Robert Pearce specializes in getting individuals their money back from bad investments. He has been helping his clients recover for over 40 years and will fight to do the same for you.  Ponzi Schemes: An Overview According to one source, there were an estimated 60 Ponzi schemes uncovered in 2019. In total, these schemes resulted in $3.245 billion in losses to investor funds.  But what exactly is a Ponzi scheme?  Knowing the answer to this question can help you identify whether you may have fallen victim to a Ponzi scheme. If you have, contact our team today to find out how we can help you recover.   Where Does the Name “Ponzi” Scheme Come From? In the 1920s, a man named Charles Ponzi promised investors they would receive a 50% return within 45 days by purchasing discounted reply coupons in other countries and redeeming them at face value in the United States as a form of arbitrage. Ponzi, in reality, was using the funds of later investors to pay the earlier investors to fund his scheme.  Ponzi operated this scheme for over a year, resulting in over $20,000 in losses to investors. What Is a Ponzi Scheme?  A Ponzi scheme is a form of financial fraud. Typically, a ponzi scheme operates by inducing investments from unsuspecting investors often by promising high, risk-free returns over a short period of time from a purportedly legitimate business venture.  In a Ponzi scheme, money funded by new investors is used to pay returns to older investors, rather than money actually made by the purported business. Essentially, the scheme relies on the constant flow of new investor money to survive.  Key Elements of a Ponzi Scheme A Ponzi scheme is a specific type of investment fraud that has a few distinct characteristics. The key elements of a Ponzi scheme involve: Using new investor funds to pay earlier investors; Representing that the returns are generated from a purported business venture; and Attempting to hide the lack of economic success of the purported venture or defer the realization of loss. If these elements exist in your scenario, there is a chance you may be the victim of a Ponzi scheme. An investment loss attorney can help you determine whether this may be the case and what you can do to recover.  Warning Signs of a Ponzi Scheme Knowing the definition of a Ponzi scheme is one thing. But being able to identify one is another thing entirely.  In fact, identifying a Ponzi scheme is more difficult than you might think. However, knowing the warning signs of a potential Ponzi scheme is the first step to avoid potentially being involved in one.  The Securities Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) have published a list of characteristics that are common to most Ponzi-like schemes. When attempting to identify a potential Ponzi scheme, look for these red flags. Promises of High Returns with Little to No Risk All investments inevitably carry some risk. Thus, any promise of a “guaranteed” high-return investment should be treated with skepticism. Typically, investments that yield high returns are riskier than investments that yield low returns. If the promise of returns seems “too good to be true,” it probably is. Overly Consistent Returns It is well-known that the market can be very volatile. Thus, investments usually go up and down over time, rather than remaining constant or going up consistently without any fluctuation.  If you are receiving all positive returns, even during times of market volatility, this could be a red flag. Seek more detailed information about your investments, and if something seems off, contact an attorney to discuss your options.  Unregistered Investments You should always be weary of investments that are unregistered.  Registration provides investors with access to important information about the company offering the investment. If a broker is selling or recommending investments that are unregistered, this may be a sign of a potential Ponzi scheme.  Unlicensed Sellers Always be suspicious of sellers who claim they are exempt from licensing.  In fact, federal and state laws require sellers to be licensed or registered. Many Ponzi schemes involve unregistered sellers or unregistered broker-dealers. Difficulty Receiving Payments As an investor, you should have the ability to cash out your investments when you choose to do so.  If you are unable to cash out your investments easily or if you have received multiple offers to “roll over” your promised payments for an even higher return, this could be a red flag.  I May Have Invested in a Ponzi Scheme—Now What Can I Do? If you believe you might be the victim of a Ponzi scheme, you might feel tempted to give up. But don’t do so quite yet.  Parties that defraud investors through a Ponzi scheme can be held liable for the losses caused by their actions. This includes brokers, financial advisors, and brokerage firms.  Additionally, if a broker-dealer is registered with FINRA, you may be able to file a FINRA arbitration against the broker who defrauded you and caused you to lose money.  So what’s next? Here’s what you need to know about how to recover from a Ponzi scheme.  Gather All Relevant Information If you suspect that you are...

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Can I Sue My Stockbroker Over Losses?

One of the most common questions we get from clients is whether they can sue their stockbroker. While the answer is technically yes, more often than not investors will have to use arbitration instead of filing a lawsuit. When you opened your brokerage account, you probably signed a new account agreement or something similar. This agreement most likely contained a clause requiring you to decide all disputes between you and your broker through mandatory binding arbitration. Brokerage firms prefer arbitration because while it is similar to the court system, it is often far cheaper and more efficient. As an investor, this option still provides a number of options for you to hold your broker responsible for misconduct. What Can I Sue My Stockbroker For? If you’ve lost money and are wondering how to sue your stockbroker, you’ve probably thought about what you could sue them for. The Financial Industry Regulatory Authority (FINRA) regulates brokers and brokerage firms. Brokers must register with FINRA and follow FINRA’s rules. These rules cover professional conduct and prohibit brokers from taking certain actions. If your broker followed all of the rules and you still lost money, then you probably can’t sue them. However, if you think your broker made a bad investment or managed your money against your instructions, you may have a claim. Some of the most common reasons why a broker is sued include Making unsuitable investments that are not appropriate for your investment profile; Breaching their fiduciary duty; Making material misrepresentations or omissions to their clients; Excessive trading with no reasonable basis for doing so, also called churning; Executing trades without a client’s permission; and  Failing to diversify their clients’ investments. Each investor has different expectations when it comes to their investments. As a result, a “one size fits all” approach is inappropriate for brokers to take. Instead, they must carefully consider their clients’ investment profiles, including each client’s risk tolerance, and act accordingly. Making a bad investment or failing to consider a client’s investment goals may be grounds to sue your stockbroker. How to Sue Your Stockbroker Because brokerage firms require their customers to agree to arbitration, you can likely “sue” your broker only through the FINRA arbitration process. FINRA arbitration is an alternative method of resolving a problem between you and your broker. Rather than going to court in front of a judge, you present your case to a neutral decision-maker called an arbitrator. After reviewing the evidence, the arbitrator may grant you monetary compensation or order other penalties against your broker. FINRA arbitration is similar to going through the court system, but because it is slightly less formal, it is often far cheaper and much more efficient. Nevertheless, the final decision in an arbitration proceeding is binding on the parties. Accordingly, you will not be permitted to make the same claims in regular court. The FINRA Arbitration Process There are six steps in the FINRA arbitration process. Much like in the regular court system, these steps allow the parties to collect evidence, present their case, and receive a decision from the arbitrator. 1. Filing a Claim and Getting an Answer Just like you would in a regular court, the first step in FINRA arbitration is filing a statement of claim and paying the filing fee. This statement sets out what you believe your broker did wrong, facts supporting that claim, and the remedy you want the arbitrator to provide. In many cases, you will want to ask the arbitrator for monetary damages to cover your investment losses. In some cases, however, you may want to force your broker to do something. This remedy is called “specific performance.” After your claim is filed, FINRA will notify your broker of the pending complaint. The broker then has an opportunity to provide an answer. The answer will contain other relevant facts and set out the broker’s defenses. Your broker, known as the respondent in the arbitration, has 45 days to respond to your claim. 2. Selecting the Arbitrator An arbitrator is a neutral third party who will act as a “judge” in your arbitration proceeding. FINRA maintains a listing of qualified arbitrators, and it will randomly select the appropriate number of arbitrators for you to choose from. Both you and your broker can strike a certain number of names off the list. This method ensures that both parties are satisfied with the arbitrators selected. The final number of arbitrators depends on the value of your claim. In investor cases with a claim up to $100,000, only one arbitrator decides the case. For investor claims over $100,000, the parties select a panel of three arbitrators. 3. Attending Pre-hearing Conferences Before any evidence is presented, the parties will meet for the first time at a prehearing conference. At this conference, the parties set the schedule for the case. This is when deadlines for discovery, motions, briefs, and other preliminary matters are discussed. 4. Conducting Discovery Discovery is the process of “discovering” facts and information relevant to your case. Just like in a civil trial, you can request specific information from the other party. However, arbitration discovery is generally much more limited. For example, FINRA usually does not permit witness questioning through depositions. If either party fails to provide documents or information in a discovery order, they may be subject to sanctions. In severe cases, the arbitrator can dismiss a claim, a defense, or the entire case. 5. Attending the Hearing At the hearing, the parties will present testimony and evidence of their case. Under normal circumstances, the hearing will be similar to what you imagine in a court case. Witnesses may be called, and documents may be presented. Parties will have the chance to conduct direct and cross-examination of any witnesses and offer exhibits for the arbitrator to consider. When the parties finish presenting evidence and hearing witness testimony, each side will make a closing statement. 6. Receiving a Decision and Award Everything presented at the hearing will become a part of the official...

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