Understanding Stockbroker Negligence and FINRA Arbitration Claims
Investing in the stock market carries risks. If a stockbroker is negligent, investors can take legal action to recover their losses. But what exactly constitutes stockbroker negligence, and when can you bring a FINRA arbitration claim?
Defining Stockbroker Negligence
Stockbroker negligence happens when a broker does not do their job with the care and skill expected of a good professional. This breach of duty can take many forms, including:
- Unsuitable Recommendations: A broker suggests investments that do not match the client’s financial goals or risk tolerance.
- A broker does not clearly explain the risks of an investment to the client.
- Churning happens when a broker makes too many trades in a client’s account. They do this to earn commissions rather than focusing on what the client needs.
- Unauthorized Trades: Executing trades in a client’s account without their consent or knowledge.
- Negligent Supervision: Not supervising junior brokers or their activities properly can lead to mistakes or bad behavior.
Each of these actions, or inactions, can be grounds for a claim if they result in financial harm to the investor.
When to Consider a FINRA Arbitration Claim
The Financial Industry Regulatory Authority (FINRA) helps investors solve problems with brokers and brokerage firms. They do this through arbitration. FINRA arbitration is a popular way to solve these problems.
It is simpler and less formal than going to court. Here are some scenarios when you might consider bringing a FINRA arbitration claim:
- Proof of Negligence: If you think your stockbroker was careless, you need to collect proof. This proof should show how their actions were below the expected standard of care. This includes documenting unsuitable investment recommendations, excessive trading, or unauthorized transactions.
- Financial Losses: The damages suffered as a result of the broker’s negligence must be quantifiable. FINRA arbitration requires you to show that the negligence directly caused financial harm. This could be in the form of losses in your investment portfolio, missed opportunities, or other quantifiable financial impacts.
- FINRA rules requires that arbitration claims be filed within a certain time period after the dispute starts. Generally, you have six years from the date of the alleged misconduct to bring a claim. Ensuring you adhere to this timeframe is crucial in preserving your right to arbitration.
- Brokerage Agreement: Most brokerage accounts include an arbitration clause in their agreements. This clause usually mandates that disputes be resolved through arbitration rather than through the court system. If your agreement contains such a clause, you may be required to pursue arbitration to resolve the dispute.
The Arbitration Process
If you decide to pursue a FINRA arbitration claim, the process typically involves:
- To file a claim, submit a statement to FINRA explaining your allegations and the damages you want.
- Selection of Arbitrators: The case is heard by a panel of arbitrators selected from a roster maintained by FINRA. The panel typically consists of one or three members, depending on the nature of the claim.
- Hearing and Evidence Presentation: Both parties present evidence and arguments. This may include witness testimonies, documents, and expert opinions.
- Decision: After reviewing the evidence, the arbitration panel issues a decision, which can include an award for damages.
Seeking Professional Advice
Navigating stockbroker negligence and FINRA arbitration can be complex. Consulting with a legal professional who specializes in securities law can help you understand your rights and options. They can help you see if your case qualifies for a claim and guide you through the arbitration process.
Stockbroker negligence can cause financial problems. However, knowing when and how to get help can effectively fix these issues.
It is important to act quickly and wisely. This helps protect your investments and get the right compensation. You can use arbitration or other ways to resolve issues.
Bakhtiari & Harrison – Trusted Securities Attorneys
Bakhtiari & Harrison is an AV-rated, battle-tested law firm focused on the worldwide representation of clients in complex arbitration, litigation, and related legal services in securities industry matters.
The firm’s partners have extensive experience in securities, employment and regulatory matters. Our focus is on delivering strategic and creative client-centric solutions.
We represent high net-worth individuals, institutions, and hedge funds in securities arbitration and litigation claims before FINRA (Financial Industry Regulatory Authority), AAA (American Arbitration Association), other arbitration providers, and state and federal courts.
The firm represents financial services professionals, registered investment advisors and broker-dealers in employment matters, industry disputes and regulatory investigations.