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What Does it Mean if the SEC is Investigating Your Brokerage Firm?

May 17, 2023 Blog

The U.S. Securities Exchange Commission (SEC) is tasked with enforcing the nation’s securities laws, and it routinely opens investigations into brokerage firms and other entities. It announces many of these investigations in Press Releases published on its website, and it maintains a running list of civil lawsuits filed as a result of these inquiries.

If the SEC is investigating your brokerage firm, what does this mean for you? Ultimately, the answer might be, “Not much”—unless you do something about it.

Understanding the Consequences of an SEC Investigation Into Your Brokerage Firm

Many people assume that if the SEC is conducting an investigation into a brokerage firm, the goal of the investigation is to obtain restitution for defrauded investors. However, this isn’t necessarily true. Oftentimes, the SEC is more focused on putting a stop to the brokerage firm’s misconduct and perhaps forcing the firm to pay a fine as a deterrent to future prohibited activities. While some SEC investigations result in restitution, this is not always—or even often—the case.

It is also important to understand that many SEC investigations result in settlements. Rather than going through the process of litigating with the SEC, brokerage firms will often choose to settle “without admitting or denying” the allegations at issue. When negotiating settlements, brokerage firms and their defense lawyers will typically focus on minimizing any financial liability, and the SEC will often be willing to settle for a result that ultimately serves the best interests of the investing public as a whole.

In short, while receiving restitution as an investor is a possibility if the SEC is investigating your brokerage firm, you should not rely on the possibility of receiving restitution as your only source of financial recovery. If you receive any restitution, it could come months—or even years—down the line. Even then, there is only a small chance that it will serve to fully compensate you for your fraudulent investment losses.

What to Do if the SEC is Investigating Your Brokerage Firm

Given that this is the case, what should you do if the SEC is investigating your brokerage firm? Rather than relying on the SEC, you should consult with a lawyer about independently pursuing legal action. Here’s why:

  • There is no guarantee that the SEC’s investigation will result in an award of restitution. As we’ve already discussed, there is no guarantee that the SEC’s investigation will result in an award of restitution. Even if the SEC wins a verdict against your brokerage firm in court (or your brokerage firm settles out of court), the outcome won’t necessarily include restitution for aggrieved investors.
  • There is no guarantee that the SEC’s investigation will result in a finding of misconduct. Even if your brokerage firm has engaged in actionable misconduct, there is no guarantee that the SEC’s investigation will uncover your brokerage firm’s wrongdoing. While the SEC has substantial investigative authority, the SEC’s processes are not infallible, and sometimes the SEC settles claims before completing the investigative process.
  • Investors have the right to pursue claims against their brokerage firms in FINRA arbitration. Regardless of the outcome of the SEC’s investigation, if your brokerage firm is guilty of fraud, you have the right to pursue a claim against the firm in FINRA arbitration. Brokerage firms are required to submit to arbitration for the resolution of customer claims as a condition of registration.
  • You do not have to (and should not) wait for the SEC’s investigation to run its course. SEC investigations and FINRA arbitration proceedings are completely separate. If the SEC is investigating, you do not have to (and should not) wait for the SEC’s investigation to run its course. Hiring a lawyer to file a claim promptly will give you the best chance of success, and your lawyer can work to recover your fraudulent investment losses while the SEC pursues its law enforcement efforts.
  • Your lawyer can use any evidence the SEC uncovers to pursue your arbitration claim. If the SEC’s investigation uncovers evidence of fraud, your lawyer can use this information in support of your FINRA arbitration claim. By the time the SEC announces that it is investigating a brokerage firm, it usually already has a substantial body of evidence in its possession. Once this evidence is made available in press releases and public court filings, your lawyer can use it to help prove your claim for brokerage firm fraud.

Additionally, when you file a claim in FINRA arbitration, you can seek full compensation for the losses you have suffered as a result of your brokerage firm’s fraud. Unlike waiting to see if an SEC investigation results in an award of restitution, you can pursue a claim focused specifically on your actual out-of-pocket losses. If warranted by the circumstances, you can seek punitive damages as well, and these are damages that you would not be able to recover if you relied solely on the SEC.

With all of this in mind, if the SEC is investigating your brokerage firm, there are some steps you will want to take promptly. Two of the most important steps are:

  • Read about the SEC’s investigation. If you learned about the SEC’s investigation through a news article or press release, you should read the details of the investigation carefully. If you have reason to believe that the allegations underlying the investigation may pertain to your relationship with the firm, you will want to consult with a lawyer.
  • Collect all documentation you have from your brokerage firm. This includes your brokerage firm agreement, letters and emails, account statements, prospectuses, and any other investment documents or forms you may have. The more information you can share with your lawyer during your free initial consultation, the better.

Contact Us to Discuss Your Claim with a Lawyer at Zamansky LLC

Is the SEC investigating your brokerage firm? If so, we invite you to contact us for more information. To discuss your legal rights with a lawyer at Zamansky LLC, call 212-742-1414 or request a free initial consultation online today.

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“Throughout my entire case, Jake Zamansky was incredibly responsive and spent time walking me through each step of the process. He is professional and worked with my challenging schedule, even meeting with me nights and on weekends. He knew exactly which turn to take when it came to my case and yet was respectful of any decisions I wanted to make resulting in a positive outcome.”

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“Jake Zamansky and his firm represented me in a FINRA arbitration case to recover investment losses. Jake and his team were very professional and worked very hard preparing for trial and then reaching a substantial settlement of our case. I would highly recommend them.”

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