What are my legal rights as an investor?
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If you lost money in your stockbrokerage accounts you have the following legal rights:
- You have the right to be represented by legal counsel in a
proceeding against your brokerage firm;
- Your broker has no right to contact you after you have
retained an attorney;
- You have the right to obtain documents and information that
your broker maintained about you and your accounts;
- You have the right to have your case presented before a panel
of three arbitrators that will make a binding determination whether
your brokerage firm was involved in any misconduct. The panel detrmines if you get all or some
of your losses returned, costs and attorney’s fees;
- With a favorable award, you have the right to be paid within 30 days.
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I lost money in my brokerage accounts. Is it my broker’s fault?
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Investments by nature involve some risk and uncertainty, and your
broker does not have a responsibility to ensure that you will make money.
If your broker guarantees you will make money in a particular stock or in
the stock market, you should not invest any money with that broker. A
broker is responsible to abide by all rules and regulations in the securities
industry and to provide you with full and complete disclosures about the
investments he is soliciting. If he does not, he and/or his employer can
be liable for your losses. In addition, a broker has a responsibility to
understand your circumstances and financial needs and make recommendations appropriate
for you. If he does not, he and his firm could be liable for your losses.
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What duties are owed to me by my broker?
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Stockbrokers owe a duty of care and loyalty to their customers. Your broker
is obligated to do the following in making recommendations to you:
- Become informed about the investment before making
any recommendation to you;
- Tell you about the risks involved in any purchase or sale;
- To learn about your investment objectives, your risk tolerance, your
investment experience, financial position, and other personal facts;
- Ensure that each recommendation is appropriate for your financial
objectives and needs;
- Disclose any conflict of interest in recommending a security, and refrain
from putting his or her self-interests or the firm’s ahead of your interest;
- Disclose all facts that a reasonable customer might find to be important to
his or her investment decision;
- Refrain from misrepresenting any fact that a reasonable customer might find
to be important to his or her investment decision;
- Refrain from transacting any purchase or sale until he or she obtains your
express prior authorization to purchase or sell the security.
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My broker is not a bad person. Will he be named in a complaint if I want to pursue a claim for my losses?
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We usually do not name the broker personally in the claim, but only pursue
the brokerage firm. When a broker’s conduct is egregious, we may consider adding him
or her, but that is discussed in advance with the client.
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After my broker opens my account and recommends investments, does he have an obligation to monitor my account?
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One important obligation of a stock broker is to monitor your account(s)
and to make recommendations consistent with changes in your economic and financial
goals as your needs and objectives change as time goes on. Your broker is required to:
- Regularly review your accounts to ensure that investments continued to be suitable, or appropriate for your needs and objectives;
- Recommend which securities to purchase, sell, hold, or hedge;
- Explain how news about an issuer’s financial performance could affect the performance of that issuer’s securities;
- Determine which sources would best answer your questions concerning investments, and use information from appropriate sources to provide you with relevant information;
- Keep you informed about your investments.
If your broker violates any of the above-described duties, and the violation caused you to lose money, you have a valid claim for damages.
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The broker says my losses were caused by “the market.” Is that a valid defense?
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It might be if the broker violated no laws, rules and regulations when handling your
accounts. However, a broker is held to high standards when being entrusted with
customer’s hard earned lifetime savings. If you lost a significant amount of money,
you owe it to yourself to contact an attorney that understands all the complex laws
governing brokerage firms and be willing to answer some questions about what happened.
A skilled attorney will be able to determine whether you have a case.
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Does it cost me anything to consult with you about my case?
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No. We do not charge for telephone conversations, meetings, and our
review of your documents. It is all free of charge. We will ask you
detailed questions about the professional relationship with your broker,
what the expectations were when you opened your accounts, a little about
your personal situation, past employment, experience with investing,
and your dealings with other brokers. We might need to review your
account statements.
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What happens if you decide I have a case?
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We will describe the nature of any suspected misconduct or wrongdoing, and
give you an objective opinion about the chances of success in recovering
your losses. We will discuss the filing fees and other hard costs necessary
to proceed with your case and advise you that it might be helpful,
although not required, to at some point retain the services of an expert
witness that can help explain complex issues on your behalf to the arbitration
panel. You will be given a fair idea of what these costs might be. After we’ve discussed
the prospects of recovery going forward and costs involved, you decide if you want to move forward
and enter into an attorney client agreement.
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Will I have costs if you agree to take my case?
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If we think you have a case, we will propose a contingent fee agreement. This
means we collect our legal fees from any settlement or award. In most instances we
require the client to pay for costs associated with pursuing your claim, such
as filing fees and session fees assessed by the arbitration forum. Sometimes
it is necessary to also retain a damage expert to determine your losses. We
have excellent relationships with highly qualified damage analysis experts that
are very reasonably priced. We can discuss costs with you in more detail. If
you decide to retain us, we will propose a contingent fee and expense reimbursement
agreement to ensure that you are fully informed before you retain us.
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How long will it take before my case is concluded?
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One real benefit to arbitration is the relative speed compared to
court. Court cases can take several years, where arbitration, from
beginning until an award is issued, takes 12 to 15 months. If the brokerage
firm decides to settle, which occurs more often than not, the time is even less.
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What is the arbitration process like?
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Another nice benefit for our clients in arbitration proceedings is that
depositions under oath prior to the hearing and extensive motion practice
are generally prohibited. This makes it less stressful for most clients.
We file our clients’ arbitrations with the National Association of
Securities Dealers (NASD) Dispute Resolution Forum. The arbitration starts
with the filing of the claimant’s statement of claim and agreement
to arbitrate. Brokerage firms are required to arbitrate. The statement
of claim sets forth the background facts and legal theories that entitle
you to recover. We spend a lot of time drafting a statement of claim
because we want to make sure the arbitrators have a clear understanding
of the broker’s wrongful acts and why you are entitled to recovery.
The brokerage firm then files its Answer, which includes their responses
and defenses to the allegations made in the Statement of Claim.
The parties will select a three-person arbitration panel from a list of 15
potential arbitrators provided by the NASD. The attorneys have the right to
make unlimited strikes of potential arbitrators and rank the remaining ones.
The net highest ranking between the parties generally determines the panel
composition. The chairman of the panel makes rulings on discovery issues.
The outcome of the award is determined by a vote of the majority of the three
arbitrators at the conclusion of the hearing.
At about the time a panel is appointed, the attorneys for the parties will
exchange document requests on each other. At this point, you will be required
to produce certain documents, such as your account statements and trade
confirmations, certain portions of your tax returns, and documents about
your investments at other firms among others. The brokerage firm will turn over
documents about your accounts, agreements you signed, account opening forms,
information about the recommended investments, the commissions the brokerage
firm made off of your accounts, complaints of a similar nature, and so forth.
Brokerage firms aren’t always cooperative, which requires us to ask the chairman
of the panel to force them to turn over documents and information we are
entitled to in order to put on your case.
With the documents we receive from the firm, together with those you provide to
us, we are constantly shaping and fine tuning our presentation for the hearing.
We will be handling almost everything for you and there will be very little for
you to do, though we will keep you apprised of any important developments. As
the hearing approaches, we will prepare you and the other witnesses to testify,
including preparing you for cross examination by the brokerage firm’s lawyer.
The hearing sessions are less formal than court, although the parties are sworn
in prior to testifying. The hearings are usually in a large conference room in a
hotel at the NASD authorized city nearest where you live.
At the conclusion of the hearing, the arbitrators will confer and make a decision.
It takes about 3-4 weeks to get the written award, which is the time the parties
learn the arbitrator’s decision. There are very limited grounds in which an award
can successfully be appealed. It is extremely rare that parties attempt to appeal
any NASD arbitration award.
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What are the chances that I will recover some or all of my losses?
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We cannot guarantee that you will recover anything, but the likelihood is very
high. We are good at determining whether you have a valid claim, and as your
attorneys, we don’t like to roll the dice for you or us. Even though you
suffered the account losses before you meet us, once we take the case, our law
firm is the one that accepts the greatest risk going forward. As a result, you
should have comfort that we are willing to take your case. Most cases settle
without the need for a hearing. But in order to settle, it will require compromise
from all parties. Based upon NASD statistics, 55-60% of the cases that go to a hearing
result in an award to the investor. Since most of the really
strong cases settle, and the weaker cases go to a hearing, you should be able to see
the odds are in your favor if we accept your case.
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How long do I have to bring my claims?
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The NASD Code of arbitration procedure says a claim must be filed within
6 years from the occurrence or event giving rise to the act, claim, dispute
or controversy in order to be eligible for submission to arbitration. Just
because a claim is eligible, does not mean a brokerage firm cannot defend on
other timeliness issues. It is always best to bring a valid claim as soon as
possible, without delay. The best thing is to seek legal advice as soon as you
think your accounts have been mishandled.
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Is there a minimum amount of loss necessary for us to take a case?
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Generally, losses have to be greater than $40,000 to justify the intense
work required to prosecute a case. However, there are some situations when we can take
smaller cases if the facts are particularly strong. Contact us and we can
discuss your facts.
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Will regulatory authorities like the SEC, the NASD, or my state securities
division help me recover my losses so I can avoid an arbitration?
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No. Government agencies and regulatory authorities generally do not get
involved in civil actions to help investors recover what they are entitled to.
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Will the broker or brokerage firm settle with me if I complain or threaten to sue them?
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It is not wise to attempt to write a complaint letter yourself in order to try to get the
firm to settle with you. Almost never, no matter how strong your case is, will a firm offer
to settle for more than a fraction of the value of your case, and most of the time they
will not even offer a penny. When a customer directly complains, brokerage firms never
accept responsibility for misconduct and always blame the market or someone or something
else. After they deny your complaint and you are forced to retain an attorney, firms will
then use your complaint letter against you, for the purpose of obtaining admissions,
inconsistencies, and to limit the scope of your complaint when a competent attorney
drafts a statement of claim.
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