Investment fraud can be hard to detect, and once detected can reveal significant financial losses to you. That is what makes investment fraud so insidious. The wrongdoing is not always obvious, and the results can be substantial.

Indeed, investment fraud can come in various forms that are not always easy to recognize when you are a victim. While there is outright fraud such as non-existent investments or strategies, fake investments, and Ponzi schemes, there are also things that look like legitimate investments that are also types of investment fraud. Those include:

  • Misrepresentations or Omissions. Fraud may occur when an investment client is not fully and fairly informed about the major aspects of an investment strategy or a particular investment.
  • Churning. It can be fraud for a financial advisor to engage in transactions, trades, or other account activity simply to generate more commissions.
  • Unauthorized Trades. An advisor may be guilty of fraud if he or she uses discretion without a client’s permission in order to engage in trades that are not approved by the client.
  • Inappropriate Investments. A finding of fraud is possible when an advisor suggests or agrees to an investment strategy that is not proper based on the client’s age, financial situation, or risk tolerance.  

Once you learn that you are a victim of fraud, however, the next question is whether you are able to recover those losses based on the fraud.  

In this article, we will discuss one way in which you can recover some of those losses that are the result of investment fraud. Of course, if you have additional questions about your own circumstances after reading this article, we welcome you to contact us today on our online contact form, or by calling 1-888-768-2499. We are the investment fraud lawyers who can help you.   

FINRA Arbitration

As a general rule, if you are a customer of a FINRA member brokerage firm (most well-known firms are FINRA members) you are required to arbitrate your claim before the Financial Industry Regulatory Authority, or FINRA. 

What is FINRA? 

FINRA is a self-regulatory organization that regulates broker-dealers in the United States.The mission of FINRA is to:

  • Provide investors with basic protections; 
  • Ensure that securities sellers are tested, qualified, and licensed; 
  • See that securities advertisements are truthful and not misleading; and 
  • Make sure that securities products sold to an investor are suitable for that investor.  

Who is Eligible for a FINRA Arbitration?

With regard to FINRA arbitration, FINRA provides a forum to arbitrate matters at a relatively low cost for customers of member brokerage firms who have been wronged. To be eligible for a FINRA arbitration, the case must involve an investor and an individual or entity registered with FINRA, and the occurrence or event giving rise to the claim must have happened within the last six years. This occurrence or event does not mean the date of purchase but may be actions such as actively concealing the fraud, continued misrepresentations or continued purchases, or misstatements of value on monthly statements within the past six years. An investor must arbitrate at FINRA if there is a written agreement between investor and advisor that requires a FINRA arbitration; the relevant broker or advisor is a member of FINRA, and the dispute involves the securities business of the broker or advisor.  

In some cases, an investor must arbitrate at FINRA if there is a written agreement between investor and advisor that requires a FINRA arbitration; the relevant broker or advisor is a member of FINRA, and the dispute involves the securities business of the broker or advisor. 

How Does FINRA Arbitration Work?

A FINRA arbitration differs from a regular court action as it is simpler and faster. There are no depositions, absent very extenuating circumstances such as a terminally ill witness. All discovery is done through a document exchange. The investor will first file a claim with FINRA, which initiates the arbitration. The brokerage firm or broker then files an answer to the claim, specifying any defenses.

An arbitrator, or panel of arbitrators, are then ranked and selected, with approval of the parties. Arbitrators next meet with the parties ‘counsel to discuss hearing dates and other preliminary scheduling matters. The parties also engage in an exchange of documents and limited information in preparation for an arbitration hearing. Once this information is exchanged, a hearing is ultimately held in person between the parties and the arbitrator(s). Following a hearing or review of the evidence, the FINRA arbitrator(s) will make a decision in the case.   

Many cases moving towards an arbitration hearing settle prior to the hearing, either through straight negotiations or through a pre-arbitration mediation. On average, FINRA arbitration matters take about 14 months to litigate from start to finish.

Simplified Arbitration

In addition to FINRA’s regular arbitration process, there is also something called a “Special Proceeding” which is a simplified arbitration process for claims of $50,000 or less. Special Proceedings include many of the aspects of a typical FINRA arbitration, but differ in the following ways:

  • The case is normally heard through a telephonic conference;
  • Each party has two hours to present his or her case, and one half-hour for rebuttal and closing statements;
  • The hearing takes no more than two hearing sessions;
  • The parties may not question an opposition witness; and 
  • The parties cannot call an opposing party as a witness.

Do I Need a Lawyer for the Arbitration?

Representation by an investment fraud attorney is not mandatory in a FINRA arbitration, but it is highly recommended that you hire an experienced investment fraud lawyer to assist you in arbitration.  

First and foremost, your adversary will most likely have an attorney. Thus, you want to be sure to level the playing field with your own investment fraud attorney. In addition, an investment fraud lawyer in your corner will greatly increase your odds of prevailing or settling your case. Finally, an investment fraud attorney will help you value your case so that you know if you are getting a fair settlement or resolution of your case.

Get a Former Wall Street Attorney to Help You with Making an Investor Fraud Claim

If you or a loved one has been the victim of investment fraud, then you need an experienced, aggressive securities fraud attorney to zealously pursue your case against the perpetrators. We invite you to contact securities fraud attorney Melanie Cherdack.    

Because she has been in the trenches as a former Wall Street attorney, Melanie Cherdack and her team of experienced attorneys have seen just about every type of investment fraud or investment loss. While almost every investment carries a degree of uncertainty and risk, you may have been unnecessarily exposed to such risk due to the actions of others.  

If you have lost money due to investment fraud or simple broker negligence, it is crucial to hire a lawyer who fully understands this area of law. Former Wall Street attorney Melanie S. Cherdack represents individual and institutional investors who are unwitting victims of investment fraud and broker negligence. She heads up a group of attorneys who represent investors across the United States. Contact us by filling out our online contact form, or calling 1-888-768-2499.