A securities lawyer can help investors who have lost money following a violation of the rules governing the sales of securities. Securities are investments like stocks, bonds, and funds. Regulators, including the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA), have designed their rules and regulation to protect investors and provide a fair and reliable market.
Investing always comes with the risk that your securities will lose money. But if you lost money because your financial advisor did not follow the rules, you may be able to win your case and get your money back.
Should I Hire a Securities Lawyer?
Because securities can consist of complex investments, financial advisors sometimes hide behind securities-industry jargon to obscure their true motives. For instance, complicated investments like variable annuities often come with significant financial risk for investors and substantial commissions for financial advisors. Financial advisors are not allowed to put their own interests ahead of their investors’ interests, but it happens all the time. With a securities lawyer’s help, investors have a better chance of recovering their losses.
One 2014 study from Virginia Law & Business Review found that securities lawyers had a significant impact on favorable arbitration outcomes. (Most investor disputes go through FINRA arbitration, rather than a civil court.) This may be because securities lawyers know what to look for when selecting a FINRA arbitration panel. According to one study from Harvard, the odds of FINRA arbitration can be stacked against uninformed investors.
Securities Law Definition
Securities are investment contracts set up to generate interest based solely on the efforts of others. The Securities Act of 1933 and The Securities Act of 1934 provide many of the laws that govern the sales of securities today.
- The Securities Act of 1933 requires that companies that wish to sell securities register with the Securities Exchange Commission. This means that a company must submit information about its finances and its plan to generate interest for shareholders. The purpose of this law is to allow investors to make informed decisions before they invest.
- The Securities Act of 1934 enhanced transparency around securities, allowing the SEC to monitor publicly traded companies’ financial statements and to oversee stock exchanges.
Securities Laws and Broker Misconduct
FINRA has strict rules governing how brokers should behave. The SEC has the same for registered investment advisors. (Not sure what the difference is? Read: Stockbroker vs. Investment Adviser: Understanding the Difference.) Keep in mind that both brokers and registered investment advisers might use the title “Financial adviser.”
Investors can check out their broker on the public record system called BrokerCheck, which FINRA maintains. BrokerCheck doesn’t always offer the full story, though, and brokers can have their records of financial misconduct expunged. The same goes for the SEC’s Investment Adviser Public Disclosure records.
What Should I Do if I Suspect Securities Fraud?
Many financial advisory agreements include a clause that requires investors to settle disputes with brokers through FINRA arbitration, rather than a court trial. According to FINRA, arbitration is typically cheaper and quicker than a trial.
To start the arbitration process, investors file a Statement of Claim with FINRA. (You can request a free case evaluation with a securities lawyer before taking that step.) FINRA Rule 12206 states that investors have six years from the time of the alleged fraud to submit a claim. Once the investor files the statement of claim, FINRA will provide a location for the initial hearing. As of 2020, these hearings increasingly take place via Zoom.
In some cases, claims are “denied,” which means that the firm does not believe that their representative engaged in misconduct. At that point, you can still pursue arbitration.
What Are the Most Common Types of Investor Fraud?
According to FINRA dispute statistics, these are the most common types of broker fraud:
Breach of Fiduciary Duty – This is a catch-all description of many types of investment misconduct. Every investment adviser has a fiduciary duty to act in their client’s best interest. (Note: this rule does not apply to brokers.)
Negligence – Negligence describes a broker failing to do something rather than intentionally seeking to defraud an investor. This broad term can include omitting important facts that might change an investor’s willingness to buy a security.
Misrepresentation – A “misrepresentation” could be a misleading statement that is intended to deceive, or it could simply mean that the investor did not describe a security’s features as well as they should have.
Failure to Supervise – Every firm has a duty to supervise their brokers. They should flag risky transactions and review them to make sure they are suitable for the investor. FINRA also requires that firms maintain supervisory systems designed to ensure that brokers comply with securities laws.
Omission of Facts – This refers to the failure to disclose essential facts. An essential fact is anything that could reasonably influence an investor’s decision. For instance, many hedge funds do not allow investors to withdraw funds except at specified intervals. Many investors would find this type of investment impractical, so financial advisors should make sure their investors are aware of these limitations.
Other common types of fraud include:
- Unsuitable investment recommendations
- Ponzi schemes
- Unauthorized trading
- Excessive trading
Contact the Securities Lawyers of Fitapelli Kurta for a Free Case Evaluation
Our experienced securities lawyers offer free case evaluations. Get in touch with any concerns you have about your investments. Call (877) 238-4175 or email email@example.com.