Not every investment will generate a positive return. There are some times when market forces mean that you will lose money, and it is unavoidable. However, other stock losses may be the result of your broker’s misconduct.
A securities broker has a legal obligation to follow both SEC and FINRA rules. If they violate these rules, and cause you market losses, you may be able to recoup some of these losses through a FINRA arbitration action.
The stockbroker misconduct attorneys at Rikard & Protopapas can help you present your case that you are due financial compensation from your broker. We are a firm with nationwide reach and resources to help you recover financially.
You Can Take Action No Matter the Size of the Loss
The size of the stock market loss does not necessarily matter when you believe that your representative broke the rules. If your loss seems unusually large, or your investment performance does not align at all with your goals, you should begin to ask questions of your broker.
You may even be able to file an arbitration claim for a small stock market loss when it was caused by your representative’s misconduct. If your investment account performed worse than it should have because of what your broker did, or did not do, you may be able to take legal action.
How Your Broker Can Cause You to Lose Money
Your broker can cause you losses in a number of ways. Many people rely on their broker for recommendations about which securities to buy. Some even give their broker the discretion to execute trades in their account.
Brokers can commit fraud or violate FINRA rules in a number of ways that can include:
Violation of suitability rules
According to FINRA Rule 2111, a representative must perform three different suitability analyses before recommending a security to a customer:
- The representative must have a reasonable basis to believe that the recommendation is suitable for at least some investors.
- The representative must have a reasonable basis to believe that the recommendation is suitable for that customer based on the customer’s own investment profile.
- A representative who has control over a customer’s account must perform a suitability analysis to know that the trade is not excessive for that customer in light of their profile.
Churning and excessive trading
The representative could make excessive trades in your account, without considering your own investment profile, that have no economic purpose other than to generate commissions or markups for the representative.
The representative could either execute a trade in your account without your authorization when they do not have discretionary authority, or they could execute a trade that exceeds the scope of their discretionary authority.
Failure to disclose facts about the investment
The representative is under an obligation to disclose material facts about an investment that would affect your decision to make a trade. This information could include the risks of the trade or the fees charged. The representative is also not allowed to make misrepresentations.
Breach of fiduciary duty
Certain representatives owe you a fiduciary duty to place your interests ahead of theirs. Even if a representative does not owe you a fiduciary duty, they must follow suitability rules.
Charging excessive commissions, markups or markdowns
FINRA Rule 2121 provides guidance on what may be considered excessive securities transactions.
FINRA has an entire series of rules that govern the representative’s conduct — which are referred to as the “2000 rules”. In addition, the broker-dealer could be liable for the conduct of the representative when they fail to properly supervise them.
The representative does not actually have to commit fraud to be liable to you for damages. You would just need to prove that they broke a rule and that it caused you losses. Then, you would file an arbitration case. The arbitrator could rule that the broker owes you money.
How to Prove Your FINRA Arbitration Claim
The broker may claim that your losses were not the result of their own fraudulent or wrongful activity. You need to carry your own burden of proof in a FINRA arbitration case. The standard is not as high as it would be in a criminal case, since it is civil litigation.
Some evidence that your attorney could use to show that your broker caused your losses may include:
- Witness testimony from people who are familiar with what happened.
- Internal communications from the broker that you obtain through the discovery process; the broker has the obligation to maintain records for a certain period of time.
- Account statements that you receive from the broker.
- Trade confirmations that the broker must send you in accordance with SEC Rule 10b-10.
- Testimony from a forensic accountant who has analyzed the pattern of trades.
- Information about your own financial situation that can prove that certain trades were not suitable for you.
Your Damages in a FINRA Arbitration Claim
The arbitrator has the discretion to determine damages if your claim is successful. They could order that the broker pay you the following:
- The losses that you suffered due to the representative’s conduct.
- Investment gains that you otherwise would have earned had your representative not violated the rules.
- Attorney’s fees that you had to spend to recover your money.
- Interest on the money you lost.
- Potential punitive damages if the broker’s conduct was egregious enough.
Your attorney would also need to present for the arbitrator’s consideration a persuasive case about the damages that you are due.
Contact a Stock Market Loss Attorney Today
When you are filing a FINRA arbitration claim for stock market losses, you are taking on Wall Street.
You need an attorney who has deep familiarity with securities rules and a knowledge of how to prove broker misconduct. The attorneys at Rikard & Protopapas work to deliver results for clients like you who have lost money because of your stockbroker’s actions.
You can reach out to us to schedule a free consultation. You can send us a message online, or you can call us today at (803)-805-7546 to discuss your case and begin the legal process.