Available 24/7Securities laws are meant to protect investors and provide for an orderly marketplace. In some cases, they even provide for a cause of action for investors to sue issuers and market participants when the laws are broken, and investors lose money. There are a variety of ways that you can possibly recover what you have lost.
As a nationwide investment fraud law firm, the attorneys at Rikard & Protopapas are well-versed in federal and state securities laws and rules of self-regulatory organizations such as FINRA. Call us today to discuss your case.
Federal Securities Laws that Govern Securities, the Markets, and Investment Advisers
Federal securities laws govern what market participants can and cannot do in connection with sales of securities. There are three laws that provide the basis for the federal government’s power over the securities industry:
- The Securities Act of 1933: This law imposed reporting and registration requirements on issuers of securities.
- The Exchange Act of 1934: This law regulates the financial markets themselves to protect investors. The Exchange Act created the Securities and Exchange Commission.
- The Investment Advisers Act of 1940: This law imposed requirements on people who make recommendations of securities.
These laws were passed in the wake of the 1929 stock market crash. The market’s sharp decline was caused, in part, due to abusive practices by stockbrokers and investment houses. In addition, investors were bidding up shares of completely unregulated securities with little to no disclosure. When the bubble burst, the market crash dragged the entire economy into a depression.
Congress intended to take strong action to prevent the abuses that caused the 1929 crash from ever happening again. Ironically, the first appointed Chair of the SEC was noted stock speculator Joseph Kennedy (scion of the Kennedy family) because it was like “setting a wolf to guard a flock of sheep.”
Federal securities laws and rules are amended from time to time in response to market conditions and crises. For example, Congress passed the Dodd-Frank Act in response to the Great Recession of 2009 to correct some of the stresses that nearly caused a complete meltdown of the financial system.
Accordingly, the government has the power to regulate brokers and other participants. Federal securities laws are enforced by the SEC, which can file civil actions for misconduct or make a criminal referral to a United States Attorney. The SEC takes an active role, both in monitoring market participants and responding to specific complaints.
Federal securities laws require anyone who is a “broker” or “dealer” to register with the SEC, with very limited exceptions. Even those who do not register with the SEC can be liable for misconduct in connection with securities transactions.
SEC Rules That Govern the Industry and Protect You
Many of the SEC’s rules about stockbrokers and investment sales originate from Section 10 of the Exchange Act. This section generally prohibits fraud, manipulation, and insider trading. Rule 10b-5 is perhaps the SEC’s favorite rule that it used to take action against broker-dealers. This rule is a broad catch-all rule that makes it illegal for someone to:
- Employ any device, scheme, or artifice to defraud
- Make any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
- To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person
In addition, there are rules under the Investment Advisers Act of 1940 that govern recommendations of securities.
Securities fraud has many negative impacts on the American economy. When securities markets are inefficient, or they are not transparent, people will hesitate to invest. Broker misconduct will undermine investor confidence, which can be felt throughout the capital markets. From your standpoint, you simply want to get back the money that you lost.
Self-Regulatory Organization Rules Are Meant to Protect You
Securities laws also require broker-dealers to register with a self-regulatory organization (SRO). While the SEC polices the market, the agency also expects market participants to police themselves. Numerous court decisions have endorsed the role of self-regulatory organizations because the SEC has a role in overseeing the SROs themselves.
Brokers are usually registered with the Financial Industry Regulatory Authority (known as “FINRA”). Each person must pass certain tests that show that they are qualified. For example, brokers need to pass a Series 7 examination to be licensed with FINRA.
The SROs have their own rules about securities transactions that are even more specific than the general SEC rules. FINRA’s rules about broker conduct appear in Section 2000 of its rule book, and these prohibitions are extensive.
For example, FINRA rules state:
- Members shall observe high standards of commercial honor and just and equitable principles of trade.
- Members may not use any manipulative, deceptive or other fraudulent device or contrivance in the purchase or sale of any security
- Member communications with the public must “be based on principles of fair dealing and good faith, must be fair and balanced, and must provide a sound basis for evaluating the facts in regard to any particular security or type of security, industry, or service.”
- Members may not “make any false, exaggerated, unwarranted or misleading statement or claim in any communication with the public.”
- Members should only recommend investment products that are suitable for their customers, knowing their customer’s own specific situation before they make any recommendations.
- Members may not make improper use of a customer’s securities or funds.
You Can Take Legal Action When Your Broker Breaks the Rules
FINRA or the SEC (or both) can take legal action against a broker who violates the rules. They may seek penalties and disgorgement (taking back the money that the broker made or took). In some cases, the SEC may establish a Fair Fund, so you can be compensated for what you lost. However, you should not just wait to see if you can get money back through the SEC.
Investors who have been defrauded have legal rights. When you take strong legal action, you may be able to recover some of the money that you lost.
While you have the right to take legal action, the method that you use may not be the same as others who have been wronged. When you are doing business with a broker who is licensed by FINRA, they are able to include a clause in the agreement that forces you into arbitration if you have a disagreement with the broker. The arbitration clause may force you to waive your right to sue and take the broker to court in front of a jury.
What awaits you is an unpredictable process. Do not assume that the broker will be able to get away with their conduct because they stay out of the courtroom and avoid being in front of the jury. In fact, statistics show that customers receive some kind of compensation in more than three-quarters of securities arbitration cases, whether it is an award or a settlement. There is a clear body of law that applies to FINRA arbitration cases, and it is possible to prove that a broker failed to follow the rules.
There are some advantages to arbitration. You could get a decision-maker who is already well-versed in securities rules. In addition, arbitration could unfold far more quickly than a jury trial, which could take years.
Types of Securities Arbitration Cases that We Handle
- Unsuitable recommendations by brokers
- Breach of fiduciary duties by investment advisors and brokers with discretion
- Failure to supervise registered representatives
- Churning (excessive trading in an account)
- Broker negligence
- Failure to follow investor instructions
- Lack of portfolio diversification
- Broker fraud and misappropriation
We help investors who have suffered losses through their broker’s misconduct in many contexts. Your broker has a legal obligation to follow the rules, and they can be made to pay when their wrongful actions cost you money. To put yourself in a position to take legal action, you need to be informed and know that you have legal options. That is where our attorneys come into the picture.
Red Flags of Securities Fraud
First, you need to learn that you have been victimized by securities fraud. Here are some signs to be on the lookout for that could be indicators of fraud:
- Someone guarantees you a high rate of return when you purchase an investment.
- There are unexplained transactions that you did not authorize on your account statement.
- The broker who offers you an investment is not registered with the SEC and an SRO like FINRA.
- The broker pitches you the investment as being offered only to you or to a limited number of people.
- You do not get an answer to a direct question that you asked.
- Someone asks you to send them payment in a suspicious way, such as through your credit card or an offshore transfer.
Remember that, if something seems too good to be true, it usually is. Someone would have little motivation to offer you something that they could keep for themselves and profit from handsomely.
You should always be vigilant by asking as many questions as you need to fully understand something and by checking your account statements regularly. The sooner you know that something is wrong, the quicker you can take action to put a stop to the misconduct.
How Our Securities Fraud Attorneys Can Help You
Federal securities laws and SRO rules can be complex and difficult to understand. There is a large body of case law and different interpretations of the rules. Then, each potential arbitrator who could be appointed for your case could have their own style and viewpoint on the laws.
You may have lost money, and you know that the broker did something wrong, but you may be hard-pressed to spot or exactly describe the misconduct. All you know is that your investment account balance to know that something is wrong. You may not know how to follow the money trail or be able to articulate which rule the broker violated.
Here is how Rikard & Protopapas can help you in your securities fraud case:
- We can help you identify the exact SEC or FINRA rules that were violated, so you can file the proper claim for relief.
- We can review your account statements or any investment disclosure to pinpoint exactly where the misconduct occurred.
- Our attorneys will come up with the total amount of damages that you are seeking in the arbitration.
- We file your arbitration complaint and work with the broker to mutually select an arbitrator for your case.
- We would either help you negotiate a settlement with the broker or argue your case in front of the arbitrator.
When you have been defrauded, you may be up against a powerful broker who has a large legal budget and practically unlimited resources. Major investment houses are in arbitration all the time. Even mid-size brokers have access to talented securities defense attorneys that they could employ to help defeat your claim.
You need a lawyer who is committed to fighting for you every step of the way. It may take many months, or even years, to get some money back. Rickard & Protopapas will do everything within our power to recover the most possible money for you.
Contact a Skilled Attorney in Securities Fraud Today
If you have learned that you have been a victim of securities fraud, the law firm of Rikard & Protopapas can provide you with tough legal representation. We have one goal in mind — to get back as much of your money as we possibly can.
It is vital that you contact us as soon as you can, so we can begin the legal process on your behalf. We may even be able to help you alert the authorities, who can put a stop to the illegal conduct.
To schedule a free consultation with an experienced securities lawyer, you can send us a message online or call us today at (803)-805-7546.