If you lost money in the stock market due to your broker or financial advisor’s misconduct, you likely agreed to an arbitration provision requiring your claim to be resolved by the Financial Industry Regulatory Authority (FINRA). According to FINRA, it is the largest securities dispute resolution forum in the world, handling 99% of all securities arbitration claims involving customers of brokerage firms.
Below are the top ten most common claims filed for FINRA arbitration in 2017 thus far. Please note that each case typically involves more than one claim.
- 1.Breach of Fiduciary Duty (1400 claims through Sept. 2017)
- 2.Negligence (1,235 claims through Sept. 2017)
- 3.Misrepresentation (1,207 claims through Sept. 2017)
- 4.Failure to Supervise (1,206 claims through Sept. 2017)
- 5.Unsuitability (1,178 claims through Sept. 2017)
- 6.Omission of Facts (1,090 claims through Sept. 2017)
- 7.Fraud (1,008 claims through Sept. 2017)
- 8.Breach of Contract (982 claims through Sept. 2017)
- 9.Violation of Blue Sky Laws (384 claims through Sept. 2017)
- 10.Manipulation (229 claims through Sept. 2017)
Breach of Fiduciary Duty claims arise when your broker or registered investment advisor violates the trust and confidence you placed in them. Many investors – no matter how educated or successful they are – simply do not have an in-depth understanding of investing. That is why they rely on professionals to handle their finances. A fiduciary duty is a high standard of care. It is the same duty owed by an attorney to his or her client.
A claim for negligence against your broker may exist if he failed to comply with industry standards, or fails to act as reasonably prudent broker under the circumstances.
Often brokers make a material misrepresentation or omission about the safety of a particular investment or the mislead customers about the facts pertaining to a company or fund they want you to invest in.
Under FINRA Rules, a brokerage firm has an unequivocal duty to supervise its brokers —particularly if the broker has a record of prior misconduct. This latter scenario is often referred to as enhanced or heightened supervision. You may have a securities claim if you suffered losses as the result of your brokerage firm’s failure to supervise its broker. In fact, Claimant’s attorneys often proceed against the brokerage firm only.
Under FINRA rules, brokers have a duty to exercise reasonable diligence to ensure their recommendations to you are suitable. Brokers must have a reasonable basis to believe that the recommended security is suitable for any investor, and to the broker’s customer in particular. The broker is required to ‘know his customer’ which means that the broker must obtain and analyze information about the customers such as age, financial situation, tax status, investment objectives, and others. Finally, recommendations must be quantitively suitable. Even if a single trade is suitable, a group of similar trades may be unsuitable because they are excessive considering the customer’s profile.
When a broker fails to disclose material (important) information about a security, and the customer suffers a loss as a result, that customer may have a claim based on omission of facts.
Fraud involves a false misrepresentation of a material fact, knowledge by the person making the false assertion that it is false or ignorance of the truth of the assertion, an intention to induce the investor to act based on the false information, an action on the part of the investor in reliance on the representation, and resulting damages.
You and your broker typically enter into a Customer Agreement that requires the broker to comply with industry rules. You may have a breach of contract claim against your broker if you suffer losses as a result of your broker violating industry rules.
Blue sky laws are state regulations enacted to protect investors from securities fraud.
Sometimes brokers manipulate the price or volume of a stock. Their motives vary but they may, for example, aim to increase the price of a security to encourage more purchase and sales among customers in order to curry favor (and income) form the issuer of the security.
Other common claims include unauthorized trading, churning, errors-charges, margin calls, and execution error.
If you believe you have one or more of the following claims, and substantial losses as a result, you should contact an experienced securities arbitration attorney as soon as possible.