The story is all too common. Busy people balancing families, careers, and countless other responsibilities entrust their financial security to a professional, only to discover that their nest egg has suffered a significant loss. These situations can be stressful and overwhelming, particularly when financial uncertainty becomes yet another source of stress.
Markets naturally ebb and flow, and investment losses are not always the result of wrongdoing. On certain occasions, however, losses may be the result of misconduct, negligence, or violations of applicable laws and regulations. When that occurs, you may have a legal claim against the financial firm, the advisor, or both.
Governing Authority
The financial services industry is subject to extensive laws, regulations, and professional standards designed to protect investors. Understanding the rules that govern financial professionals can help identify when conduct may have fallen short of those standards and whether an investor may have a legal claim for resulting losses.
Understanding the Rules That Govern Financial Professionals
Broker-dealer firms are firms that engage in the buying or selling of securities on behalf of their clients. The term “security” is purposely broad and covers a variety of financial instruments, including stocks, bonds, exchange-traded funds (ETFs), and options.
Broker-dealer firms operate within a highly regulated industry and are subject to oversight by the Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), and applicable federal and state laws and regulations. Violations of applicable federal or state laws, regulations, or FINRA rules may, depending on the circumstances, constitute evidence of misconduct and support a claim for investment losses.
When Financial Misconduct May Give Rise to a Claim
Investment losses can occur for many reasons, and not every loss is actionable. However, when a financial professional or firm fails to meet its legal or regulatory obligations, the resulting losses may provide grounds for a claim. Understanding what happened, whether applicable rules were followed, and who may be responsible are important first steps in evaluating your options.
Arbitration
When an investment dispute arises, the process for resolving it may look different from a traditional lawsuit. For many investors, arbitration is the required forum for pursuing a claim against a broker-dealer or financial professional. Understanding how arbitration works, why it may apply to your dispute, and what to expect throughout the process can help you make informed decisions about your legal options.
Why Many Investment Disputes Are Resolved Through Arbitration
When a client opens an account with a broker-dealer firm, the terms of the contract govern how disputes will be resolved. In many instances, these broker-dealer firms include an arbitration clause requiring disputes to be resolved through arbitration rather than in court. They also may identify the applicable arbitration forum. FINRA operates an arbitration forum to litigate these financial disputes, although some firms may require arbitration through other forums.
How FINRA Arbitration Works
Arbitration shares many similarities with traditional litigation. In FINRA Arbitration, for example, both parties file their pleadings, exchange relevant documents, conduct discovery, and may file motions to resolve different issues before the hearing.
The parties also have an opportunity to participate in selecting the arbitrators who will decide their case. Depending on the amount and circumstances of the claim, the matter may be heard by one or three arbitrators. FINRA provides both parties with a list of potential arbitrators, from which the parties rank preferred candidates and strike others.
Discovery, Settlement, & the Hearing
Once the arbitration panel is set, the parties then engage in discovery practice where both sides produce documents necessary for their respective cases. As in litigation, the parties may also engage in settlement discussions at any time. If the parties cannot reach an agreement on the settlement, the arbitrator or panel will hear the evidence and make a final decision at a hearing.
A More Streamlined Path to Resolution
Arbitration can offer a more efficient, cost-effective, and straightforward process for resolving financial disputes than traditional litigation. While every case is different, arbitration may allow parties to reach a final resolution without the potentially lengthy process associated with court proceedings. These specific procedures, costs, and timeline will depend on the applicable arbitration forum and the circumstances of the dispute.
If you or anyone you know has suffered significant investment losses while working with a financial professional, those losses may be more than the result of ordinary market fluctuations. Consulting with an experienced attorney can help you understand what happened, whether misconduct or other wrongdoing may have contributed to your losses, and whether you may have options for recovery.
For more information, or to seek counsel from our Investor Claims practice group, please reach out to request a consultation or call us at 216-696-1422.
_____
The information contained in this blog post is provided for general informational purposes only and should not be construed as legal advice. Readers should consult with qualified legal counsel regarding their specific circumstances before taking any action based on the information presented.
