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Investment Fraud and Misconduct

Investment Fraud and Misconduct

Stock brokers and investment advisors are among the most trusted members of society. We entrust them with our hard-earned money and rely on them to use their expertise to grow the money entrusted to them into a suitable nest egg for the future. It is not an overstatement to say that we put our future in their hands.

Unfortunately, not all stock brokers or advisors are worthy of that trust. News reports are filled with investment advisors who have engaged in Ponzi schemes or who have put their own finances ahead of their client’s financial well-being by selling away safe investments in favor of shaky or speculative investments or have churned an account to increase commissions. Even if the broker or advisor is not dishonest, he may be incompetent. The law requires that a broker know his client and recommend investments suitable to the client’s goals and position in life. All too often, brokers and advisors failed to understand their client’s goals and meet their legal obligations.

And then there are the issues with the products they market. Some of the stock and bonds sold are simply bad stocks and bonds. Brokerage houses who have these bad products in their inventory will frequently push their brokers to sell them to their clients to shift the risk to the small investor. There are also the issues with the non-conventional investments, limited partnerships, etc., that may, in circumstances, make sense, but which are generally unsuitable for everyone.

How do you know if the loss was the faulty of the broker or advisor?

Legitimate investments lose value all the time. In a bear market, most stock-based investments lose money. The investment professional is not a guarantor that you will always make money. For the loss to be actionable, there must be some type of fraud or other violation of the securities laws or a breach of contract, negligence or some other legal duty. If you have suffered significant loss, the first thing to do is to have an attorney review the reasons for the loss to see if the laws have been violated. This may involve the use of experts to determine whether the conduct of the investment professional fell outside the legal standard of care and to calculate damages.

Many people who lose money through no fault of their own are embarrassed by the loss. They somehow believe that they should have known what was happening and therefore want to hide their “foolishness” from friends and family. Fraudsters know and prey upon these feelings. Everyone, no matter their level of sophistication, can become the victim of financial fraud. You should not allow a fraudster to escape because of potential embarrassment. Doing so only allows the unscrupulous broker to target another victim.

What are the SEC and FINRA?

The securities industry is regulated by two entities, the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA). The SEC is the government agency responsible for overseeing the financial integrity of the markets. FINRA is a self-regulating, member-based organization that oversees member firms, stock brokers and other investment advisors. Either the SEC or FINRA can bring enforcement actions. As a practical matter, the SEC is superior to FINRA, but FINRA serves a vital role in the regulation of the securities industry.

As part of its regulatory functions, FINRA administers the arbitration clauses contained in almost all investment contracts. FINRA qualifies and appoints arbitrators and establishes rules for arbitration.

What is P.I.A.B.A.?

As noted above, FINRA arbitrations are conducted pursuant to specialized rules. Fortunately, there is an organization of attorneys dedicated to helping the investor whose money has been lost. The Public Investors Arbitration Bar Association (P.I.A.B.A.) is comprised of attorneys who specialize in this highly specialized practice area and provides education and training to its members. For more information on PIABA, visit their website at As a member of this organization, I am prepared to represent the investor who has been taken advantage of.

How does securities arbitration work?

Arbitration is a form of “alternative dispute resolution” (ADR). Rather that filing a complaint in a court and proceeding through discovery, motions and trial, arbitration provides for an abbreviated proceeding designed to come to a prompt resolution. Unlike a court proceeding, there is no judge or jury. Instead, an individual known as an arbitrator or a group of people (usually three) known as a panel of arbitrators will hear and decide the case. The case begins with a “Statement of Claims” which is filed with FINRA. FINRA then appoints either a single arbitrator or a panel of arbitrators to hear the matter.

In a normal civil case, the parties will exchange documents and interrogatories. Eventually, parties and witnesses are then subjected to deposition. One side or the other may file motions to dismiss or for summary judgment. Eventually, there may be a trial and a verdict followed by an appeal. The process can take a long time and be very expensive.

In an arbitration, the case proceeds much more rapidly. Discovery is far more limited, and the decision of the arbitrators is final, even if it is wrong. There is generally no appeal from a valid arbitration.

At Dennis E. Boyle, Attorney at Law, I will investigate possible investment fraud or misconduct free of charge. If fraud or misconduct has occurred, my firm can pursue action either in court or in a FINRA arbitration or other forum, depending on the investment contract. There is no cost to the investor unless I secure a recovery. If you or a family member has been the victim of a broker or financial professional, please give me a call. I would like to talk to you about your case.

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