Investor Litigation

There is an element of risk in any investment.  The mere fact that a customer has lost money does not mean that the investment advisor has done something wrong – but it may.  If you have lost money that you believe may have been the fault of your investment professional, you should speak with an attorney.  Cohn Lifland’s Investor Litigation team is ready, willing and able to evaluate your claims, guide you through your legal options and represent your interests.

There are a number of claims that can be made against investment professionals.  The following are the most common:

• Churning – Churning involves excessive trading, intended to generate commissions for the broker rather than profits for the investor. This is usually characterized by frequent transactions with no real purpose other than to generate commissions.
• Unauthorized Investments – An unauthorized investment occurs when the investment professional has not obtained the consent of the customer to execute the transaction before acting. The professional is not permitted to execute a transaction on behalf of the customer unless he or she has either a power of attorney in writing from the customer or the customer’s prior consent to that particular transaction.
• Suitability – The most common claim against an investment professional is generally referred to as unsuitable trading. Securities industry practice requires that an investment professional recommends investments that are suitable to the customer. They must be: (1) suitable to the customer’s investment desires, and (2) suitable for the customer’s objective investment needs. That is what the investment professional, based upon his or her informed professional judgment, believes is appropriate for that customer.

Duty to Conduct Due Diligence

An investment professional is not simply an order taker.  The professional is not permitted to simply execute a transaction just because the customer says he or she wants to.  There is a professional standard that requires that the investment professional knows his or her customer and executes transactions that are appropriate to that customer.  To do so, the professional must do what is referred to as due diligence, adequately learning as much as he or she can about the client, including his or her goals and objectives, and the investment itself, so that he or she can match that investment appropriately to the customer.

FINRA

The Financial Industry Regulatory Authority (FINRA) protects investors and regulates the securities industry.  FINRA operates by drafting and implementing rules governing the activities of security firms with a collective population of over 600,000 brokers.  FINRA continuously inspects firms for compliance with the rules and regulations, fosters market transparency and educates investors.  It ensures that: (1) every investor is protected; (2) anyone who sells securities products meets FINRA standards; (3) advertised security products are truthful; (4) all securities products are suitable for the investor’s needs; and (5) investors receive appropriate disclosure about the product before purchasing.

FINRA, Arbitration and Mediation

Arbitration is a process that resolves disputes between two or more parties by qualified, neutral individuals, who are called arbitrators, who serve as decision-makers for each case.  Through arbitration, one has the ability to address improper acts in a time-saving and cost-effective manner. An arbitration award is final and binding.  When a client pursues a claim through arbitration, the client will be barred from pursuing the same claim through the courts.  FINRA may request the parties to resolve the issues through mediation.  There are many well-trained mediators that can help investors and brokers reach a settlement.  In most cases, if you are an investor, you should talk to your attorney about pursuing mediation even while the arbitration is pending.

Starting the Process of Arbitration with FINRA

Arbitration begins when one files a claim with FINRA.  If a customer believes his or her investment professional has acted improperly, the customer’s lawyer will file a Statement of Claim.  The claim must provide details of the case, including the dispute, relevant dates, names of entities and individuals involved, and the type of relief requested.  A claimant can request a variety of relief, including damages, interest, and specific performance.  After a Statement of Claim is filed, a claimant must also file a Submission Agreement and pay the appropriate filing fees.  Once the requirements are fulfilled, FINRA will serve the claim on the respondent identified in the claim and state the process.

The Process of Arbitration Through FINRA

After the parties are served with the appropriate documents, the process can begin.  Arbitration selection is the process in which FINRA decides who will act as the arbitrators and how many of them are needed.  For claims of $50,000 or less, FINRA will choose one arbitrator and subject the case to simplified arbitration procedures.  For claims between $50,000 and $100,000, one arbitrator will be appointed, unless the parties agree to more in writing.  For claims over $100,000, FINRA will appoint three arbitrators to decide the case.  FINRA chooses arbitrators through the Neutral List Selection System.  Thereafter, the parties will go through a pre-hearing conference to resolve any preliminary issues and schedule discovery and hearing dates with the arbitrators. The next step in the process is discovery, which is a long process.  Parties will exchange documents and information relevant to the case in order to prepare for the hearing.  During the hearing, the parties and arbitrators meet and address the pending issue.  Both parties are prepared to present arguments and evidence in support of their case.  At the end, the arbitrators will deliberate the facts in the case and decide on the matter.  Once a claimant initiates the arbitration process, the legal issue will most likely be resolved within the year.  FINRA rarely hears a case older than six years. 

For over four decades, Cohn Lifland has effectively and successfully represented investors in claims they have brought against investment professionals.  In the course of that time, we have helped hundreds of investors in bringing their claims.  Securities arbitration is technical, and you may wish to consult an attorney who is familiar with the area and understands both the strengths and weaknesses of an investor’s case.  It is also helpful to have an attorney who has had sufficient experience to have seen both the ups and downs of the stock market and is familiar with how the panels of arbitrators think about claims brought by investors.  Our attorneys are widely experienced and have in-depth knowledge in connection with prosecuting all aspects of securities arbitration and mediation involving many various claims.

Cohn Lifland knows that your investment is important.  If you have lost money because of the improper conduct of an investment professional, you should act.