How Much Can You Recover? Find Out from a Stockbroker Fraud Attorney
If you have suffered fraudulent investment losses, recovering your losses will most likely involve filing for arbitration with the Financial Industry Regulatory Authority (FINRA). Defrauded investors can fully recover their losses in FINRA arbitration, and in some cases, they can recover punitive damages as well. Regardless of the facts of your case, filing a successful claim starts with hiring an experienced stockbroker fraud lawyer to represent you.
Calculating Investors’ Compensatory Damages in FINRA Arbitration
FINRA arbitrators use three primary methods to calculate investors’ compensatory damages. If your stockbroker fraud attorney is able to prove that you are entitled to financial compensation, your attorney will then focus on maximizing your financial recovery based on one of the following methods:
1. Net Out-of-Pocket Loss
With this method, investors’ damages are calculated based on the actual out-of-pocket losses they have sustained as a result of their broker’s fraud. This method is often least-favorable to investors, as it both: (i) takes into account the investor’s income (if any); and (ii) fails to consider the investor’s opportunity costs.
For example, let’s say you invested $100,000 based on your broker’s negligent advice. After receiving $10,000 in dividends, you ended up losing $30,000 when you sold your stock. In this scenario, your damages calculated using the net out-of-pocket loss method would be $20,000. Of course, stockbroker fraud cases can be much more complicated, and using this method will make sense in some scenarios.
2. Trading Losses
The trading losses method is similar to the net out-of-pocket loss method except that it does not take the investor’s income (if any) into account. Thus, in the scenario discussed above, your damages calculated using the trading losses method would be $30,000.
3. Well-Managed Portfolio Losses
The third method focuses on what you would have earned had your stockbroker managed your portfolio effectively. As a result, it takes into account not only your loss of principal but also your lost opportunity cost. For example, let’s say not only that your investment has lost $30,000 in value but that you would have earned $20,000 with a well-managed portfolio. In this scenario, your damages would be $50,000.
Punitive Damages in FINRA Arbitration
What about punitive damages? FINRA’s arbitration rules include provisions for punitive damages in appropriate cases. To obtain punitive damages, investors must be able to prove not only that they are victims of stockbroker fraud, but that their broker’s fraud was particularly egregious. Your stockbroker fraud attorney can determine if your case qualifies—and if so, your attorney can seek an appropriate punitive damages award on your behalf.
Schedule a Free Initial Consultation with a Stockbroker Fraud Lawyer
Are you a victim of stockbroker fraud? If you believe that you may be entitled to damages in FINRA arbitration, we encourage you to contact us for a free initial consultation. To speak with an experienced stockbroker fraud lawyer in confidence, please call 212-742-1414 or tell us how we can reach you online today.