Lawyers in our firm continue to handle cases involving securities fraud. “Churning,” one of the most common problems we encounter, involves unnecessary and excessive trading of an investor’s account in order to generate broker commissions. This is fraud, pure and simple. Investors should review their accounts on a regular basis to ensure that the account is being properly handled and that they are not losing money to unscrupulous fee generation.
Another common problem we see is “Suitability.” Investments for some investors may not be appropriate for others. A broker should account for factors such as an investor’s age, overall financial situation, investment objectives, and risk tolerance when recommending investments. We have witnessed elderly clients losing their life savings in high risk investments, when their circumstances dictated that safer, more conservative investments be made.
We have seen other cases where an investor’s portfolio is not adequately diversified. A “hot” investment may create a windfall for the investor over a short period of time, but problems arise when the investment flames out and there is nothing left to back it up. Investors should consult with their broker to be sure that their investments meet their needs, and that their broker is not “putting all of their eggs in one basket.”
Most investor claims of securities fraud are required to be brought in arbitration before the Financial Industry Regulatory Authority (FINRA). We have not met an investor yet who knew their claim was subject to arbitration – and, furthermore, we have not met an investor who was happy to learn that he or she had lost the right to trial by jury! Arbitration is more expensive than the traditional jury trial system, as the arbitrators (typically a panel of three) are all compensated at a rate of several hundred dollars per hour. These fees are charged not only for the final arbitration hearing, but also for work the arbitrators perform in the “pre-hearing” process, including handling motions, reviewing documents, and other matters.
That being said, there has been a little good news for investors with respect to FINRA arbitration. In the past, FINRA’s three arbitrator panels have been composed of two public arbitrators and one arbitrator presently or previously employed in the securities industry. The industry-connected arbitrator was often predisposed to side with the securities industry Defendants. Earlier this year, however, FINRA announced that the Securities and Exchange Commission approved FINRA’s proposed rule change allowing customers the opportunity to have an “all-public” panel of arbitrators. Although not as fair as our time-honored and tested jury trial system, removing the requirement of a securities industry arbitrator from FINRA panels is a good start for investors.
If you need more information or would like to discuss securities fraud claims in greater detail, contact Scarlette Tuley (Scarlette.Tuley@BeasleyAllen.com), Archie Grubb (Archie.Grubb@BeasleyAllen.com), Bill Hopkins (Bill.Hopkins@beasleyallen.com) or Andrew Brashier (Andrew.Brashier@BeasleyAllen.com), all lawyers in our Consumer Fraud Section.
Contact us today for a free legal consultation with an experienced attorney.
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