Brokerage Customer / FINRA Arbitrations

If you suffered investment losses due to misconduct, fraud, or negligence by your investment advisor or stockbroker, you may be entitled to file a legal claim to recover some or all your damages. Mark A. Strauss Law has extensive experience in securities litigation, including representing investors and other stockbrokerage clients in arbitrations at the Financial Industry Regulatory Authority (FINRA), the self-regulatory organization that oversees and regulates stockbroker-dealers and their registered representatives.

Investment account agreements generally require that any disputes between the customer and stockbrokerage firm or its representatives be resolved through arbitration at FINRA. Even if an agreement does not contain a pre-dispute arbitration clause, the customer has the right under FINRA rules to demand arbitration.

Investors’ claims in arbitration at FINRA typically fall into a handful of broad categories:

• Unsuitability. Stockbrokers and investment advisors have a duty to recommend investments that are suitable given the client’s age, investment goals, risk tolerance, liquidity needs, tax status, and other factors. Violations of this duty frequently form the basis for FINRA arbitration claims. For instance, if your stockbroker recommended investments that are excessively volatile, keeping you awake at night, or if you discovered only after the purchase that a recommended investment is difficult to sell, making it impossible to access your money, you may have a suitability claim.
• Overconcentration/Inadequate Diversification. Investment portfolios are supposed to be diversified – that is, allocated among a wide variety of different investments to reduce exposure to any single asset class, category, or investment risk. Overconcentration is the opposite – putting an excessive portion of your account into a single investment, type of investment, or in investments that are so similar that their performance is correlated. Overconcentrated portfolios are prone to sudden, significant losses in response to market and economic events. If you believe that you suffered a loss due to overconcentration, it is important to confer with an experienced FINRA arbitration attorney like Mark A. Strauss to evaluate whether you may have a claim.
• Unauthorized Trading. Investors can sign documents giving their stockbrokers “discretionary trading authority” – meaning that the stockbroker has power to buy or sell securities on client’s behalf without his or her consent. Without such a signed document, however, the stockbroker has an obligation to obtain the client’s approval before executing any trades. Trades in violation of this requirement are infrequent but when they occur and result in losses can often be the basis for a FINRA arbitration claim.
• Churning. Stockbrokers frequently earn commissions or other fees on each trade they effectuate on behalf of their clients. Churning is an illegal practice that occurs when a stockbroker or investment advisor engages in trading in a customer’s account to generate commissions without regard to the client’s investment goals. Red flags of churning include unauthorized trades, frequent in-and-out purchases and sales, and excessive fees.
• Misstatements/Omissions or the Failure to Fully Explain Risks. Most stockbrokerage accounts are non-discretionary, meaning that the customer’s prior approval is required for all transactions and strategies executed in the account. In obtaining that approval, stockbrokers and investment advisors owe a duty to be truthful – specifically, they have an obligation to disclose material facts relevant to your investment decision. This includes identifying and explaining the risk factors posed by the investment or strategy in question. Truthful and complete disclosure is particularly critical when sophisticated and complex financial products such as leveraged or inverse exchange traded securities (ETFs and ETNs) or structured products are involved.

If you believe that investment losses you suffered are a result of misconduct by your stockbroker or investment advisor, you need an experienced attorney to help evaluate whether you may have a viable claim and to explore your options. Contact securities fraud and litigation attorney Mark A. Strauss for a free and confidential consultation.