When a broker behaves badly, you usually will see a FINRA legal specialist enter the picture. FINRA is an acronym that stands for the Financial Industry Regulatory Authority. This not-for-profit is sometimes confused with the Securities and Exchange Commission. The SEC is a governmental agency that oversees FINRA-related activities.
How FINRA and the SEC Operate
The initiatives of FINRA and the SEC are related to treating investors equitably and fairly. While Congress has given FINRA authorization to ensure ethical broker activity, the SEC serves as the initial overseer for appeals for FINRA-based legal claims.
The SEC was established by the U.S. government to protect the interests of investors and make sure that stock market transactions are performed with transparency.
Types of FINRA Cases Handled by FINRA Lawyers
A FINRA attorney specializes in investment fraud and therefore manages the following types of cases.
Cases Involving Breach of Duty
As a fiduciary, a broker must put his or her client’s investment interests first. When he or she breaches this duty, they violate their client’s privacy and trust.
Broker Negligence and Malpractice
If a broker fails to follow the standards set by the investment industry for reasonable and prudent investing, he or she may have to answer a negligence claim.
Omissions and Failures to Disclose investment Risk
Claims regarding misrepresentation include omissions or a failure to disclose the risks connected with an investment. For instance, if a broker advises you to invest in a security but does not reveal the level of risk, a FINRA lawyer can file a claim for the financial loss you sustained.
Conducting Extra Trades for Profit
When a broker executes excessive trades to generate extra income, the activity is called churning – a case that FINRA attorneys frequently handle.
Making Recommendations that are Unsuitable for the Client
If a broker suggests you invest in a stock that is above your tolerance for risk and you lose money, a FINRA lawyer can help you recoup your money.
Pressuring Investors to Take Immediate Action
A broker who presses a client to make a trade without allowing him or her to think it over can be held liable for the activity. A FINRA lawyer intervenes to help the client get back the money he or she lost from agreeing to the recommendation.
Trading without a Client’s Consent
If a broker makes a trade without a client’s permission, he or she can get sued for unauthorized trading. A lawyer can bring suit against a broker even if they make a trade in a discretionary account.
A discretionary account allows a broker to trade without getting authorization from the client first. However, if the holder of the discretionary account has limited the number of trades and the broker goes over the established amount, he or she can get sued.
A Failure to Properly Oversee Broker Activity
A lawyer that handles FINRA cases can submit a claim against a brokerage company that does not follow its responsibility for proper broker supervision where the client suffers a loss.
Breaches of Contract
When a client signs up with a brokerage company, the broker will request that the client sign an agreement that details the broker’s trading responsibilities. If the agreement’s terms are broken by the broker, an attorney can intervene and sue for breach of contract. In turn, he or she can help you receive monetary damages for the broker’s violation of the contract.
How a FINRA Lawyer Defends Clients
If you call a FINRA attorney, you usually do so after you have been defrauded in an investment scam. The attorney will typically represent you in arbitration before FINRA arbitrators, selected by both parties.
When a FINRA lawyer is called, it is because a client has experienced a financial loss as the result of a broker’s failure to disclose, overtrading activities, or high-pressure sales tactics.
FINRA arbitration allows an attorney to help a client recover lost money or damages because of a broker’s unethical behavior. Because arbitration decisions by FINRA are usually decisive and the chance for an appeal is slight, a lawyer, who handles FINRA cases, must be well-versed in securities practices and violations.
Therefore, the lawyer you choose must have both the knowledge and experience needed to create a defense that ends in a successful outcome. If you have suffered losses from an investment that resulted from a broker’s misguidance or oversight, you should discuss the situation with an attorney.
Most contracts between a client and his broker include an arbitration agreement that prevents the client from going to court to sue the advisor. Therefore, an investor, who has a dispute or who has experienced fraud, must file a claim for arbitration through FINRA.
FINRA Arbitration Proceedings
An arbitration is similar to a court hearing. However, it is more casual and decisions are reached more quickly. It is also less expensive than filing a lawsuit. When you retain the services of a FINRA lawyer, he or she will support your case by performing the following activities.
Filing the Claim
A FINRA lawyer drafts the necessary court documents, beginning with a statement of claim. This claim must be submitted to show how you were defrauded by your broker and how his or her behavior led to a financial loss. The broker or brokerage has a window of 45 days to respond to the filing.
Determining Who Will Arbitrate the Claim
After the statement of claim is filed, FINRA will provide an arbitrator or an arbitration committee of three arbitrators to hear the case. Both sides in the case must agree on the choice or choices for an arbitrator.
The number of arbitrators is based on the amount of the financial loss and alleged damages. A hearing is not held if losses are under $50,000. In this case, FINRA decides the case based on the filed legal briefs.
Performing Discovery for the Claim
When FINRA hears cases, discovery in the case does not include interrogatories or depositions. Instead, the FINRA lawyers may request that the brokerage provide documents related to the allegations included in the filed legal claim.
As a litigant, you may also have to contribute correspondence or brokerage account statements that your broker provided. The brokerage company may also have to submit prior complaints about the broker’s misconduct or negligence.
Representing the Investor
During the arbitration, the FINRA lawyer usually makes an opening statement before questioning witnesses or providing evidence. He or she cross examines witnesses as well that have been asked by the brokerage firm to appear. The FINRA lawyer ends the process with a closing argument.
Arbitration Timeframes
Arbitration is not as long of a process as taking a case to court. Decisions are also finalized more quickly.
How Long Is the Arbitration Process?
Arbitration takes about one year to 18 months.
When Is a Decision Made?
After the hearing, FINRA gives its decision within 30 days. This decision is usually binding. Appeals can only be made if an attorney can prove that an obvious error was made with respect to a legal fact or rule.
