Common Investment Fraud Questions

If you have questions regarding your investment fraud or stockbroker misconduct case, please contact our securities arbitration and litigation attorneys. Here is a list of frequently asked questions you might have in regard to investment fraud and misconduct issues. If you would like specific answers that relate to your unique situation, simply contact our firm to allow one of our attorneys to review your case.


General Questions

What is a fiduciary duty?

  • Brokers and brokerage firms have a duty to deal in good faith with their clients and many jurisdictions hold that brokers owe their securities customers a heightened duty known as a “fiduciary duty.” Brokers and brokerage firms can be held responsible for abusing the investor’s trust and confidence and breaching their fiduciary duties.

What is churning?

  • When a broker engages in excessive trading for the purpose of generating additional commissions, this is called “churning.” Both the broker and the brokerage firm may be held liable for any losses that arise out of the churning.

When is an investment “unsuitable” for me?

  • A broker’s advice should fit within your criteria, meet your financial goals and match your risk tolerance and overall situation. The brokerage firm could be held liable for your financial losses when a broker suggests unsuitable investments and you lose money.

How do I know if I have a claim against my brokerage firm?

  • If you believe that that your investments have been handled incorrectly, you should talk with an attorney who is experienced in this area of the law to evaluate your case.

Investment Misconduct Questions

What are the signs of hedge fund fraud?

  • Prior investor complaints or litigation history
  • A concentration in illiquid or difficult-to-value investments
  • Pressure to invest or assurances that the hedge fund is “completely safe”
  • A lack of regular audits by an independent accounting firm
  • Unusually good performance over the long term, especially in a poor market

What are the signs of stockbroker misconduct?

  • Transactions you did not authorize
  • Losing money when similar investments have gained
  • Seeing an overall decline in your investments
  • Big gains or losses

Is it possible to still have a claim if my investments lost money due to my broker being negligent?

  • Negligence does not have to be intentional. If the broker’s conduct fell below the acceptable level of care such as failure to monitor your accounts, this could be considered negligent. Broker negligence cases are generally handled in arbitration before FINRA.

Are investment advisers required to have credentials?

  • There is no law that requires them to have credentials but some states do require investment advisers to pass a proficiency exam.

Investment Fraud Questions

What are the most common types of investment fraud?

According to the North American Securities Administrators Association, the main financial product scams right now are seen in the form of:

  1. Private Offerings
  2. Distressed Real Estate Investment Scams
  3. High-Yield Investment and Ponzi Schemes
  4. Affinity Fraud
  5. Scam artists using self-directed IRA’s to Mask Fraud
  6. Risky Oil and Gas Drilling Programs
  7. Proxy Trading Accounts
  8. Digital Currency

What should I do if I suspect fraud regarding an investment?

  • If you suspect that one of your investments may be fraudulent, the first step should be to contact an experienced investment fraud lawyer.

How can I recover investment losses?

  • In order to recover any losses due to investment fraud, you will have to file an arbitration claim with FINRA. The arbitration process through FINRA usually has four phases –
  1. Your attorney will file a “Statement of Claim.”
  2. One to three FINRA arbitrators will be selected depending on the amount of damages involved in the dispute.
  3. Your attorney and the Respondent’s attorney will exchange information (“discovery”).
  4. Final arbitration hearing.
  • The process can take from about 10 months to a year-and-a-half.

Securities Mediation Questions

What is FINRA mediation and how does it differ from FINRA arbitration?

  • Mediation is an informal and flexible dispute resolution process. The mediator’s role is to guide the parties toward their own resolution. Through joint sessions and separate caucuses with parties, the mediator helps both sides define the issues clearly, understand each other’s position and move closer to resolution. The mediator has no authority to decide the settlement or even compel the parties to settle. Mediation is non-binding, until parties agree on a resolution. If the matter does not settle, the claimant has preserved the right to pursue arbitration.

Who chooses the mediator when a claim is handled in securities mediation through FINRA?

  • After conferring with the parties, FINRA will send a list of proposed mediators from its roster of experienced mediators. The mediators on the list may have subject-matter expertise or other experience, consistent with the parties’ needs in the case. Both parties have a say in the selection of the mediator.

Securities & Arbitration Questions

What is securities arbitration?

  • Securities arbitration is the process of resolving a dispute between the parties before a panel of arbitrators who are selected through a process agreed to by the parties. Arbitrations are conducted in accordance with the Uniform Code of Arbitration, which was developed by the Securities Industry Conference on Arbitration and the rules of the organization where the claim is filed.

How successful are stock fraud arbitrations?

  • A high percentage of stock loss cases settle prior to final arbitration.

Who oversees the arbitration proceedings?

  • Most securities arbitration proceedings are administered by FINRA.

What are the costs associated with arbitration?

  • The investor is responsible for certain expenses including filing fees, discovery costs, the cost of preparing exhibits, and FINRA hearing fees. The average filing fee with FINRA is $1,250.

How much time does the arbitration process take?

  • On average, arbitration can take a little over a year to complete from the time the claim is filed until an award is rendered.