FINRA and Its Responsibilities
The Financial Industry Regulatory Authority, referred to simply as FINRA, is the largest self-regulatory organization of brokers in the country. The arbitration component of FINRA follows unique procedures not applicable to the courts but are able to conclude cases faster than courts. The key is making sure those outcomes benefit you because FINRA arbitration is often the only path toward financial recovery.
FINRA is overseen by the U.S. Securities and Exchange Commission (SEC). Their primary goal is to ensure that the financial markets in the United States are running smoothly and fairly. Some of their key responsibilities include educating investors, implementing and enforcing ethics guidelines for all registered brokers and broker-dealers, and ensuring that brokers and firms comply with these rules, which in part detail the duties owed to their clients.
When a broker breaches their fiduciary duty or any other standard of care, investors have options. Mainly, you can file a claim with FINRA. If successfully executed through arbitration or mediation, you can recover your losses. But knowing if your losses were due to broker misconduct or negligence isn’t always easy.
Our experienced California FINRA attorneys know the types of dishonest schemes that brokers use to defraud investors. A California FINRA attorney from the Wolper Law Firm, P.A. will determine whether you are a victim of a stockbroker’s unlawful misconduct. If you are, we will outline your legal options and hold the broker or brokerage firm accountable.
When to File a Claim with FINRA for Investment Losses
Even if you have noticed a considerable loss in your portfolio, you might think it was part of the risk you took when investing in the first place. And it’s true: you take a risk when you invest. A financial advisor or stockbroker will not be liable for any losses simply because they made poor decisions or selected unfavorable investments.
Brokers, however, become liable for investment losses when:
- A broker’s act or omission amounts to negligence or, on the contrary, is intentional to put their own interests above their client’s interests and, as a result,
- The client suffers monetary damages.
When those two circumstances are present, a claim should be filed. Over the years, fraudulent investment schemes have been identified. If you choose to proceed with FINRA arbitration, understanding and being able to prove these schemes will be critical to your success.
Examples of Broker Misconduct
- Failure to Supervise. Brokerage firms may be liable if they fail to properly supervise or train a broker who commits a violation.
- Misrepresentation and/or Omission. Misrepresentation occurs when a stockbroker intentionally withholds material information or provides investors with misleading information to influence an investment decision.
- Misappropriation of Assets. Misappropriation of assets can materialize in different forms, like money going missing from your account (broker theft) or a broker requesting checks be issued to them personally instead of to the firm.
- Excessive Trading. Excessive trading, also known as churning, occurs when brokers over-trade in investors’ accounts to generate commissions for themselves.
- Failure to Diversify. To avoid undue risk, investment portfolios should be diversified across businesses, industries, and product types. When portfolios are not diverse and investors lose money, brokers can be held liable. This misconduct is also known as over-concentration.
- Selling Away. Selling away refers to situations where a stockbroker sells investments, often high-risk ones, that are not approved or offered by their brokerage firm.
- Unauthorized Trading. Unauthorized trading occurs when brokers make trades in nondiscretionary accounts without investors’ authorization.
- Unsuitable Investment Recommendations. When brokers recommend investment opportunities not aligned with their clients’ investment objectives and risk tolerance, those unsuitable investment recommendations may be evidence of fraud.
- Negligence. Negligence occurs when the broker’s conduct falls below the legal standard of care established to protect investors against unreasonable risk or harm.
- Ponzi Schemes. A Ponzi scheme is an investment scam that involves using funds from new investors to pay purported returns to existing investors.
Investors should also look out for “free lunch” seminars, private placement offerings, and alternative investments. So-called investment or free lunch seminars are often used to promote fraudulent trading or Ponzi schemes. Private placement offerings are a concern because they rely on Rule 506 of Regulation D and, as such, are not regulated and have become a haven for fraud. Alternative investments, though often legitimate and high yielding, are also often presented to investors with inaccurate or inflated values on brokerage statements to encourage investment in them.
In the event you are unsure whether your broker defrauded you, you should schedule a consultation with one of our FINRA attorneys in California. At Wolper Law Firm, P.A., we have a 99% success rate and intend to keep it that way, if not better.
If you represent yourself in a FINRA arbitration, you increase your chances to become another unsuccessful FINRA statistic. But, if you retain one of our FINRA attorneys, you significantly increase your chances to win. Take the first step to recoup investment losses: call us at 800.931.8452 to schedule a consultation.
How Does the FINRA Arbitration Process Work? What Does a California FINRA Lawyer Do?
FINRA arbitration is like a legal proceeding in court but is less formal and is intended to be quicker and less costly than filing a lawsuit. In short, independent arbitrators review the evidence and decide the outcome.
The FINRA Arbitration Process
- File a Statement of Claim Filing a Statement of Claim initiates the FINRA arbitration process. Your attorney will draft the statement, in which they will adequately and persuasively describe how your broker’s fraud, negligence, or misconduct caused you to lose money.
- Response After the Statement of Claim is filed, the investment firm has 45 days to respond and file an answer.
- Arbitrator Selection Both parties must agree on the arbitrators. When one party objects, the proposed arbitrator becomes ineligible to participate. Claims of $50,000 to $100,000 are heard by a single arbitrator, and claims of more than $100,000 are heard by a panel of three arbitrators. Claims under $50,000 are adjudicated without a hearing and are determined by FINRA based on the legal briefs filed by the attorneys.
- Discovery FINRA limits discovery for its arbitration purposes. Depositions and interrogatories are not allowed as they would be in a civil action. Your attorney, however, should request documents from the brokerage firm that relate to the allegations in your Statement of Claim. The brokerage firm’s attorney may ask that you provide documentation as well.
- Mediation A FINRA attorney in California may first seek FINRA mediation, but both parties must agree to mediation. FINRA mediation provides an opportunity to obtain a meaningful settlement. Alternatively, if a settlement cannot be reached, it is also a chance to discover the other party’s arguments and identify their weaknesses.
- Hearing Your California FINRA attorney from Wolper Law Firm, P.A. will represent you at the FINRA hearing. We will present a strong opening statement, strategically question witnesses, persuasively present evidence, cross-examine the other party’s witnesses (if any), and give a compelling closing argument.
- Decision The arbitrators review the evidence and testimony and then decide the outcome of the case. This decision is binding and cannot be appealed, a stark difference from a civil case where the verdict can be appealed.
You have only one opportunity to recoup your investment losses. Make sure you use that one opportunity wisely: put your trust in an experienced California FINRA lawyer.
At Wolper Law Firm, P.A., our California FINRA attorneys are strategic and innovative. When we win your case, the other party has 30 days following the decision to pay the settlement. If the other party fails to provide payment, FINRA can impose additional sanctions, like additional fines, suspensions, or a barring from the securities industry. As your FINRA enforcement attorney in California, Wolper Law Firm, P.A. will take all necessary steps to ensure you receive the settlement money.
Don’t Wait When You Suspect Fraud – Retain Our California FINRA Attorneys
Pursuing arbitration through FINRA is often the best way to ensure that you are fully compensated for your investment losses that resulted from broker negligence or misconduct. You must, however, take immediate action to secure the evidence. Note that FINRA Code 12206 mandates a six-year statute of limitations. The clock starts ticking as soon as the negligence or misconduct occurred.
No claim shall be eligible for submission to arbitration under the Code where six years have elapsed from the occurrence or event giving rise to the claim.
A word of caution: Six years may seem long, but evidence can quickly dissipate, and memories fade, making recovery of losses more difficult. Failure to comply with the statute of limitations can be used as a defense by the broker. When the deadline expires and you file a FINRA lawsuit, it will likely be thrown out.
To learn more about how our California FINRA lawyers at Wolper Law Firm, P.A. can assist with your claim, contact us for a free, confidential consultation. We can be reached by phone at 800.931.8452 or via the quick submission form included below.
FINRA FAQs
Our California FINRA Lawyers Answer Common Questions
Filing a FINRA claim requires a solid understanding of the process and an ability to gather and present the evidence persuasively and coherently. Though you may find it overwhelming, we at Wolper Law Firm, P.A. have extensive FINRA arbitration experience, and this experience provides us with the insight to meaningfully help our clients.
Here, we answer many of the most common questions we get when we first meet our clients. If you have specific questions, contact us for a free, confidential consultation.
Arbitration can take as long as 12 to 18 months, which includes the hearing and the decision. The time it takes to settle or arbitrate your FINRA claim depends on the unique facts and circumstances of your case.
FINRA mediation can occur any time before a case concludes. In fact, it can begin before or during FINRA arbitration. The goal is simple: to help brokers or brokerage firms and investors resolve their disputes and reach a settlement. It is a neutral first step in the dispute resolution process to facilitate communication between the parties.
Mediators do not make resolution decisions but rather encourage parties to reach mutually acceptable agreements. The actual process and/or duration is case-specific. There may be multiple sessions or only one session where the parties either reach an agreement or decide to arbitrate. If the parties do agree and sign a settlement agreement, that agreement becomes binding.
You might be able to recover losses through FINRA mediation. Mediation, however, often renders a settlement that does not result in full recovery of investment losses. It is something you and your FINRA lawyer must discuss together.
Alternatively, a civil lawsuit could be filed, but that is only if your agreement does not require FINRA arbitration. Unfortunately, most agreements today include a FINRA arbitration clause. Our California FINRA lawyer will thoroughly review and analyze your agreement and advise you accordingly.
To make a complaint against the broker or brokerage firm, you must file a complaint through FINRA. FINRA will investigate and take disciplinary action if violations are found.
FINRA recommends that you first inquire about issues with the broker or firm. The initial query can be oral, but if answers are unsatisfactory, you should send the broker or firm a written complaint. These communications can later be used as evidence during arbitration.
When you invest significant money, you want to make sure your financial advisor or broker is trustworthy. Keep a watch out for warnings that could materialize in any of the following ways.
- Guarantees. Your broker guarantees an investment will perform a certain way. Every investment involves some risk, and a broker cannot guarantee performance.
- Pressure. A broker pressures you to make a quick decision on an investment, implying that if you don’t act right away, you will lose the opportunity. Legitimate investment opportunities don’t disappear overnight.
- Unregistered Security. A stockbroker tries to sell you an unregistered security. Unregistered securities aren’t subject to all the laws designed to protect investors and are often sold by fraudsters.
- Absence of Documentation. You are offered a stock, mutual fund, or bond but are told there is no documentation for it. If a stock or mutual fund doesn’t have a prospectus or a bond doesn’t have an offering circular, it could be unregistered or otherwise fraudulent.
- Too Complex to Be Good. If the investment the broker describes is so complex that you can’t understand it and you don’t understand the risks involved, and they can’t be made clear to you, don’t invest.
- Too Good to Be True. A security you are offered appears to provide consistent high growth and high returns even during market dips. Every investment can experience some ups and downs.
Investors who don’t pay close attention to their brokerage account statements are often targets of fraud. To protect yourself, review your statements regularly for unauthorized trades, excessive trading, and other possible signs of broker misconduct or negligence.
No, you do not have to hire an attorney to file a FINRA claim. But remember, more than 50 percent of FINRA claims are lost to investors. You do not want to take that risk. Hiring an experienced, resourceful California FINRA attorney to represent you is in your best interests.
Anyone who invests in the stock market may be a victim of broker misconduct and fraud. There are, however, two types of investors who are frequent victims.
- Passive Investors. Often, brokers take advantage of investors who fail to regularly review their brokerage account statements, so they do not realize they are victims of fraud until it’s too late.
- Elderly investors. Elderly investors with a lifetime of retirement savings are also targeted. In fact, elder financial abuse is a priority for state and federal regulators.
If the broker is found guilty of investment fraud, in addition to paying restitution they could lose their broker’s license and certifications. Stockbrokers can also face criminal charges for fraudulent activity and, if found guilty, can face hefty fines and imprisonment.
Contact A Trusted California FINRA Enforcement Attorney
You invest to diversify and build your financial resources. You don’t invest to lose it all to a broker or firm unlawfully managing your investment account. Unfortunately, California is home to the second highest number of FINRA disputes. At Wolper Law Firm, P.A., we are not afraid to hold California brokers accountable for their misconduct, and we have a 99% success rate because of our efforts.
Our attorneys at Wolper Law Firm, P.A. handle FINRA claims and other investment fraud cases for clients throughout the country. Schedule a free consultation by calling us at 800.931.8452. We can be reached seven days a week.
Attorney Matthew Wolper
Matt Wolper is a trial lawyer who focuses exclusively on securities litigation and arbitration. Mr. Wolper has handled hundreds of securities matters nationwide before the Financial Industry Regulatory Authority (FINRA), American Arbitration Association (“AAA”), JAMS, and in state and federal court. Mr. Wolper has handled and tried cases involving complex financial products and strategies ranging from traditional stocks and bonds to options, margin and other securities-based lending products, closed/open-end mutual funds, structured products, hedge funds, and penny stocks.
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