Practice Areas FINRA FINRA Arbitration

FINRA Arbitration Attorney

The fiduciary duty rule is among the most confusing and hotly-debated protections afforded to individual investors. While investment advisors owe a fiduciary duty to their clients, investment brokers are not necessarily subject to the same standard. As an investor who has suffered losses due to inappropriate or self-interested investment advice, understanding your rights is the first step on the road to financial recovery. The best way to make sure you understand your rights is to contact a FINRA arbitration lawyer at Zamansky, LLC.

Who Owes a Fiduciary Duty to Investors?

Under current federal laws and regulations, investment advisors owe a fiduciary duty to their investor clients. This means that they have a legal obligation to make investment recommendations with the investor’s best interests in mind, and they are prohibited from recommending or engaging in trades that put their financial interests before the interests of their client. If an investment advisor makes an investment recommendation because it will generate a commission or high fees – and not because it is a sound investment for his or her client – this would be a classic example of a breach of the fiduciary standard. Other common examples of fiduciary breaches include:

• Intentionally misleading clients into particular investments for personal financial gain (i.e. recommending high-risk investments that can generate significant commissions to low-risk investors);
• Failing to seek the best price and terms for a particular transaction; and,
• Making personal use of an investor’s assets.

However, even in these types of situations, it isn’t always easy to tell whether an investment advisor has breached his or her fiduciary duty. As a general rule, if you have suffered sudden or unexpected losses in your portfolio, you should speak with a FINRA arbitration attorney promptly. Even if you do not have a claim for breach of fiduciary duty, you may have other grounds to recover your losses through arbitration with the Financial Industry Regulatory Authority (FINRA), and acting quickly with all fees to give you the best chance to secure a financial recovery.

Our FINRA Arbitration Attorney Explains Your Rights Against a Broker Who Offers Self-Interested Investment Advice

Unlike investment advisors, most investment brokers are not subject to a fiduciary duty. While this comes as a surprise to many people, generally speaking, the law treats brokers as salespeople and not as financial advisors.

But, while brokers may not have a fiduciary duty, they are subject to various other legal standards. For example, under FINRA’s rules for registered brokers, brokers must always provide “suitable” investment recommendations. As a result, if you have invested with a broker, you may still have various grounds to pursue a financial recovery. We encourage you to contact us promptly to discuss your legal options.

Federal Protection Against Fraudulent Misrepresentations and Omissions

Rule 10b-5 promulgated under the Securities Exchange Act of 1934 is one of the investors’ greatest protections against investment fraud. In addition to generally prohibiting fraud in investment transactions, it also specifically prohibits investment advisors from making misrepresentations about material facts and omitting facts that are material to investors. A fact is considered “material” under Rule 10b-5 if it is a piece of information that an average investor would want to know before making an investment decision.

Examples of material facts that investment advisors often misrepresent or omit when discussing potential trades with their clients include:

• The risks associated with a particular investment
• Financial or legal risks facing the company selling stocks or bonds
• Broker’s fees, commissions and other costs that will be charged to the investor

These are just a few of the most common examples. If you believe that you were misled into an investment in any manner, you should speak with a FINRA arbitration attorney about your legal rights.

No one is immune to the risks of investment fraud. Scam artists and unscrupulous brokers do not discriminate when it comes to targeting unsuspecting investors.

- Jacob H. Zamansky

Common FINRA Arbitration Cases

Generally speaking, arbitration claims can arise when an individual or organization suffers investment losses due to greed or negligence on the part of those appointed to advise them, such as an investment advisor or brokerage firm. If you are unsure whether your case qualifies, we invite you to speak to a specialist FINRA attorney from our law firm to put your potential claim into context.

If any of the following common cases seem familiar or apply directly to your circumstances, you are in a strong position to consider filing arbitration claims to resolve your dispute.

A Breach of Fiduciary Duty

Fiduciary duty breaches occur when someone in a position of trust fails to meet their legal obligations. For example, the attorney-client relationship assumes a fiduciary duty to clients on the part of their attorneys.

Specifically, the onus is placed on a financial professional to give advice and make decisions putting the best interests of their clients first. That means that they will not carry out trades for personal gain, nor will they recommend a particular investment in pursuit of higher commissions when it does not fit the client’s risk tolerance profile.

Failure to Disclose Risk

In addition to their fiduciary duty to clients, a brokerage firm or other financial professional has an obligation to understand their client’s profile, including their attitude to risk. Younger clients may be more open to risk when making investment decisions, while those closer to retirement may prefer steady growth without any chance of losing everything.

Common misrepresentations include mischaracterizing the risk associated with a particular investment, misrepresenting a company’s financial condition, and withholding information about the fees and commissions investors will be required to pay. Both intentional and unintentional misrepresentations can support claims in FINRA arbitration, and there are a number of ways we can prove that your broker or investment advisor deprived you of the opportunity to make an informed decision.

If an advisor fails to take a client’s risk tolerance into account when providing investment advice, that may give rise to a dispute worthy of arbitration.

Negligence

Many cases of securities fraud can be traced back to negligence on the part of someone involved, not least because there are multiple points of failure in any fiduciary relationship. Claims made on this basis might potentially involve the recommendation of financial instruments with which the brokers themselves are unfamiliar, or they might have failed to meet the industry standards that FINRA itself is tasked with upholding.

Negligence claims can also arise following the initial recommendation or investment. For example, if a financial advisor assures a client that they will take an active role in their investments, such as monitoring diversification or altering the investment strategy in the face of unforeseen market conditions, they can be considered negligent if they fail to do so and this leads to investment losses.

Unauthorized Trading

Some investors prefer to retain full control over their strategy, making decisions based on advice from financial professionals but handling the purchase and disposal of assets for themselves. Others leave the buying and selling to the professionals, but often with limited scope.

If an appointed individual elects to make trades for which they do not have permission, it is considered unauthorized trading. Many FINRA claims arise not only when finance professionals make trades for those that prefer to do it themselves but also when the advisor goes above and beyond the scope afforded to them by a client.

For example, it is worth speaking to a FINRA lawyer about potential claims if you believe that your financial advisers made decisions that conflict with your overall strategy.

Unsuitable Recommendations

Investment professionals have a legal obligation to provide their clients with “suitable” investment advice. A suitable investment recommendation is one that (i) has a reasonable basis, (ii) fits the individual investor’s financial condition and risk profile, and (iii) makes sense within the broader scope of the investor’s overall portfolio. Unsuitable investment recommendations can cause unexpected losses when investors can least afford them, and they will often provide grounds to seek financial recovery through FINRA arbitration.

Excessive Trading / Churning

Excessive trading is another common form of investment fraud that will often be accompanied by unsuitable investment advice, breach of fiduciary responsibility, and fraudulent misrepresentations or omissions. Also known as “account churning,” excessive trading involves buying and selling securities in an investor’s account for the purpose of generating fees and commissions. If you are seeing trades that you did not authorize, if your broker or advisor is frequently “in and out” of individual investments or if you are being charged excessive (and perhaps ambiguous) fees, these are all potential signs that you are a victim of investment fraud – and a FINRA legal practitioner can help.

Yield Enhancement Strategies

A YES strategy is an investment where a broker sells call or put options to enhance returns in relatively stable or flat markets. Although the YES strategy is often pitched as a “safe” or “stable” for consistent returns, the reality is that the investment products bought and sold under YES strategies are extremely complex and risky, and unexpected market turbulence can quickly lead to substantial losses. The iron condor is a specific version of a YES strategy that often leaves investors with a surprise, significant loss.

Other Forms of Fraud

Various other forms of investment and financial fraud can support claims in FINRA arbitration as well. At Zamansky, LLC we represent clients whose portfolios were overconcentrated, who were bilked into oil and gas investment scams, who invested in junk bonds and overly-complicated structured products, and who have suffered all other types of fraudulent investment losses. If you believe that you may have a claim, or if you are unsure and would like to find out, it is strongly in your best interests to seek legal representation as soon as possible. We can assess your situation and help you make an informed decision about asserting your legal rights.

Current Fraud Investigation: Zamansky is currently investigating claims of securities fraud, investment fraud, misrepresentation, breach of fiduciary duty and other sales violations towards GWG Holdings L Bond holders sold by Emerson Equity.   

Unsuitability Claims Against Brokers and Investment Advisors

When you hire an investment professional, you expect him or her to make recommendations with your best interests in mind. You expect to receive recommendations that take into account your financial condition and risk profile. In other words, you expect to receive “suitable” investment advice.

This expectation is not just reasonable, it is your legal right. Under the Financial Industry Regulatory Authority’s (FINRA) rules for investment brokers, financial advisors “must have a reasonable basis to believe that a recommended transaction or investment strategy…is suitable for the customer, based on the information obtained through…reasonable diligence.” If you have suffered losses in your portfolio due to an unsuitable investment recommendation (or multiple unsuitable recommendations), you may be entitled to recover your losses through FINRA arbitration.

FINRA Requirements for Suitable Investment Recommendations

As stated by FINRA, “[t]he suitability rule is fundamental to fair dealing and is intended to promote ethical sales practices and high standards of professional conduct.” To make suitable investment recommendations, brokers must take into account multiple factors, including the investors’:

• Age
• Other investments
• Financial situation and needs
• Tax status
• Investment objectives
• Investment experience
• Investment time horizon
• Liquidity needs
• Risk tolerance

When providing investment recommendations, brokers must also consider, “any other information the [investor] may disclose,” in connection with the particular trade in question. Taking into consideration all of the relevant investor-specific information, brokers must then satisfy three distinct suitability obligations: (i) reasonable-basis suitability, (ii) customer-specific suitability and (iii) quantitative suitability.

1. Reasonable-Basis Suitability

Investment brokers must have a reasonable basis to believe, “based on reasonable diligence, that the recommendation is suitable for at least some investors.” If a broker does not understand the risks associated with a particular investment or investment strategy, it simply is not possible for that broker to make an informed recommendation. Likewise, if an investment is not suitable for anyone, then it will not be suitable for a particular investor regardless of his or her financial condition and risk profile.

2. Customer-Specific Suitability

Brokers must make all investment recommendations based upon an assessment of whether each particular recommendation is suitable for the individual investor receiving the recommendation. This requires careful, trade-specific consideration of each of the factors listed above.

3. Quantitative Suitability

Brokers must also ensure that their investment recommendations are not “excessive and unsuitable” when viewed in light of an investor’s existing portfolio. Under this component of FINRA’s suitability rule, an investment recommendation can be unsuitable, “even if suitable when viewed in isolation.” According to FINRA, investment turnover rate, cost-equity ratios, and use of “in-and-out” trading are all relevant considerations when evaluating quantitative suitability.

No one is immune to the risks of investment fraud. Scam artists and unscrupulous brokers do not discriminate when it comes to targeting unsuspecting investors.

- Jacob H. Zamansky

Our FINRA Arbitration Attorneys Outline 3 Warning Signs of Excessive Trading

If you are concerned that your broker or investment advisor may be profiting at your expense, there are a number of warning signs you can look for. As outlined by the Securities and Exchange Commission (SEC), three of the most common warning signs of excessive trading are:

• Trades that you did not authorize suddenly appearing in your monthly account statement
• Frequent trading (or “in-and-out” purchases and sales of securities) in a manner that is inconsistent with your investor profile
• Excessive fees across your entire account or within a particular segment of your portfolio

The SEC also warns, “[b]e aware that excessive trading can occur even if the overall account value increases.  Also, remember that your account statements, trade confirmations, and online account do not disclose all fees.” In other words, even if you are making money overall or if excessive fees are not showing up in your account, you could still be losing out due to excessive trading.

No one is immune to the risks of investment fraud. Scam artists and unscrupulous brokers do not discriminate when it comes to targeting unsuspecting investors.

- Jacob H. Zamansky

Proving Account Churning

For most investors, recovering fraudulent investment losses due to account churning involves filing for arbitration with the Financial Industry Regulatory Authority (FINRA). Registered brokers and brokerage firms are required to submit to FINRA arbitration for investor claims, and arbitration provides an opportunity to recover fraudulent investment losses without the time commitment and hassle of going to court. To recover financial compensation for account churning in arbitration, an investor must be able to prove that:

• The broker had access to and control over the investor’s account
• The broker engaged in conduct that constitutes excessive trading under SEC Rule 15c1-7 or another applicable provision of federal law
• The broker acted with the intent to defraud the investor or profit at the investor’s expense

When seeking to recover fraudulent investment losses through FINRA arbitration, it is essential to have an experienced legal team on your side. At Zamansky, LLC our FINRA arbitration legal practitioners have decades of experience helping investors secure compensation in FINRA arbitration nationwide. During your free initial consultation, we will examine the transactions in your portfolio to determine whether you have a cause of action for excessive trading (or any other form of investment fraud), and if so, we will take legal action on your behalf at no out-of-pocket cost to you.

6 Key Facts about FINRA Arbitration for Individual Investors

FINRA arbitration is a legal process that results in a legally binding decision without the need to go to court. FINRA arbitrators are experts in investment fraud, and each year they handle hundreds of cases that result in hundreds of millions of dollars in fines and restitution.

1. You Have Six Years to File Your Arbitration Claim

The “statute of limitations” for seeking to recover fraudulent investment losses through FINRA arbitration is six years. While you don’t want to wait anywhere near this long if you don’t have to, if it has been years since your broker took advantage of you, you could still be entitled to recover your fraudulent losses.

2. If You Win, You Are Entitled to Payment Within 30 Days

If the FINRA arbitrators rule in your favor, you will be entitled to payment within 30 days of the date of the arbitration award. In addition, most FINRA arbitration claims settle, which means that the broker or brokerage firm agrees to compensate the investor for his or her losses.

3. Hiring a Financial Fraud Attorney Isn’t Required, But It Is Strongly Recommended

Although you are not required to hire a FINRA arbitration attorney to represent you in arbitration, seeking legal representation is strongly recommended. Not only is the arbitration process intricate and complicated, but you need to be able to prove that you are legally entitled to recover your investment losses.

4. It Can Cost You Nothing Out of Pocket to Hire an Experienced FINRA Arbitration Attorney

At Zamansky, LLC, we typically handle individual investors’ arbitration claims on a contingency-fee basis. This means that our financial interests are fully aligned with yours, and you do not pay anything unless we help you secure financial compensation.

5. FINRA Arbitration is Faster and Less Expensive than Going to Court.

While going to court can take years and will often be prohibitively expensive for individual investors, arbitration provides a faster and less-expensive alternative. Even when a claim goes through the entire arbitration process and to a final hearing, the average time to resolution is about 18 months.

6. About Half of All Arbitration Claims Result in Direct Settlements.

Only a relatively small percentage of FINRA arbitration cases – about one in five – go to a final hearing. About half of all investment fraud arbitration claims result in a direct settlement between the parties.

Additional FAQs Answered By A FINRA Arbitration Attorney

What are my chances of recovering fraudulent investment losses through FINRA arbitration?

Your chances of receiving an award in arbitration are entirely depending upon the facts of your particular case. As a result, a FINRA lawyer cannot estimate your chances of recovery without speaking with you. However, we can share some statistics that have been published by FINRA:

• From 2012 through 2016, 76 percent of all cases filed resulted in settlements or arbitration awards
• Approximately 80 percent of all FINRA arbitration rewards result in payment to the investor, and FINRA and Congress are both actively considering measures to bolster investors’ ability to recover
• From 2013 through 2017, FINRA arbitrators awarded investors more than $233 million in restitution for fraudulent investment losses

Is FINRA arbitration the same as going to court?

It is often possible to recover financial compensation without going to court. If you have lost money because of a bad broker or financial advisor, you may be eligible to file a FINRA arbitration claim. This process is typically quicker and less costly than litigation. In the event that you decide to litigate your case, your FINRA lawyers may be able to settle your lawsuit without going to court.

Who are FINRA Arbitrators?

FINRA arbitrators are classified as either “public” or “non-public.” A public arbitrator is someone who does not have a significant affiliation with the securities industry. This means that he or she has not worked in the securities industry as a broker or advisor, has not worked for a securities regulator, and has not served as a lawyer representing clients in securities-related arbitration or litigation. A non-public arbitrator is someone who meets FINRA’s general arbitrator qualification criteria but does not qualify as a public arbitrator. The general arbitrator qualification criteria include having a minimum of five years of professional experience and two years of college credits.

If a dispute is assigned to a single arbitrator, that arbitrator will be a “chair-qualified” public arbitrator. If a dispute is assigned to a three-person arbitration panel, the panel will consist of either:

• One chair-qualified public arbitrator, another public arbitrator and a non-public arbitrator; or,
• One chair-qualified public arbitrator and two other public arbitrators.

FINRA currently has a roster of more than 7,000 qualified arbitrators. After an investor files a claim, FINRA generates a list of potential arbitrators using its Neutral List Selection System (NLSS) to both parties. FINRA then provides this list to both parties along with an Arbitrator Disclosure Report for each listed arbitrator. This Arbitrator Disclosure Report includes information about the arbitrator’s education and employment history as well as the arbitrator’s past decisions.

After reviewing the Arbitrator Disclosure Reports and conducting additional research, each party goes through a process of striking and ranking potential arbitrators. FINRA then assigns the arbitrator or arbitrators with the highest combined ranking(s).

Where Does FINRA Arbitration Take Place?

In some cases, FINRA arbitration hearings will take place via telephone or videoconference. By default, when hearings are held in person, they are held at one of FINRA’s 69 hearing locations across the United States. FINRA has at least one hearing location in all 50 states and a location in San Juan, Puerto Rico. However, your FINRA attorney can request an alternate hearing location in their state, and the parties can also agree to arbitrate at an alternate mutually-acceptable location.

How can I find a FINRA arbitration attorney who can help me?

If you suspect you are the victim of fraud in connection with your investment in stocks or other financial products, you should seek a FINRA arbitration attorney with specific experience and knowledge of securities fraud cases. Zamansky LLC is a leading securities fraud law firm that will put its legal knowledge to work for you.

Schedule a Free Initial Consultation with a FINRA Arbitration Attorney

Unfortunately, in the investment world, fraudulent misrepresentations are common. Whether due to a lack of understanding of a particular security or investment strategy, or an intentional attempt to conceal relevant information (as often occurs when a broker or advisor has a financial interest in a particular transaction), investors are regularly asked to make decisions based upon incomplete or inaccurate information. When this happens and investment losses result, investors are entitled to recover financial compensation. The FINRA arbitration lawyers at Zamansky, LLC can help you file a claim and seek justice.

Zamansky, LLC is an investment and financial fraud law firm that represents individual investors nationwide. If you are concerned about losses in your investment portfolio, our lawyers can determine if you have grounds to recover financial compensation in FINRA arbitration. To get started with a free and confidential consultation with a top FINRA arbitration attorney, call us at 212-742-1414 or tell us how we can help online.