Knowing your rights, keeping up with the latest legal precedents, and having experienced professionals on your side is crucial to recovering losses in the event of fraud.
Money, for better or for worse, makes the world go round. What we do with our money and, subsequently, our investments can become some of the most critical decisions for our present and future. Therefore, entrusting our investments to a broker means entrusting someone with our livelihood, future, protection, and peace of mind.
So what happens when a broker betrays that trust? Whether through improper compensation, cover-ups, or security law violations, a broker can lose or put into jeopardy your hard-earned income. As an investor, though, you have legal rights to bring about compensation when this occurs.
Here are four things to know about your rights as an investor in the event of broker fraud.
How can a broker take advantage?
You might be asking yourself, how can a broker take advantage of your investments? Aren’t they supposed to be open and commutative about significant decisions and work in your best interest? In theory, yes. However, greed and lack of accountability can be essential factors in fraud. Here are a few of the most common ways a broker can commit fraud and what you should look for as an investor.
- Stealing
- This is just plain old-fashioned theft. This is obviously fraud if a broker—or multiple brokers serving a more prominent broker firm—converts funds to personal accounts.
- Conflict of interest/”selling away”
- Selling away is a term used in the securities industry to describe a situation where a broker sells investments to clients that are not approved or offered by their employing brokerage firm. This practice is typically against the rules of most brokerage firms and violates securities regulations.
- Unapproved trading
- If a broker makes trades on your behalf but ones you did not approve, that is fraud. On that same note, even if you give a firm carte blanche to make trades on your behalf without approval needed at every turn, there are typically clear parameters set in place. If a trade is made outside of those lines and money is lost, then fraud can be established.
- Omission of facts
- If a broker convinces you to invest in certain areas but omits essential facts or research that could lead to a bad investment, and it’s made known they knew of said facts and research yet kept it quiet for various reasons, this can be considered fraud.
There are other types of fraud, ranging from lack of diversification or breakpoint sale violations. Ultimately, if you think your investments aren’t being handled with the care they deserve, take the initiative to see if you might be being taken advantage of; it will pay off in the long run.
What are your responsibilities?
When a broker commits fraud against an investor, there are legal options for the latter. The Securities and Exchange Commission (SEC) handles requital in the finance field, taking away certificates, assigning retribution to the point of barring, and even bringing legal action in court on behalf of themselves and alongside wronged investors.
The Federal Industry Regulatory Authority (FINRA) is the SEC’s regulatory and arbitration arm. Investors who were victims of fraud can seek damages through FINRA proceedings.
The SEC can carry a case against a broker/broker firm to court and even assign investors as receivers for monetary gains won. There is also the option to bring a class action suit as a group of investors, although this is not associated with SEC proceedings. However, as the actual and sole investor, you can only seek lost damages through FINRA proceedings.
To do this, you must work with an experienced securities attorney and then file a claim with FINRA to get the ball rolling on an arbitration hearing.
Statute of limitations
A statute of limitations limits the time a case can be tried after discovering wrongdoing. FINRA has established statute of limitations parameters that apply to fraud cases.
Most cases brought under federal law fall under a two-year statute, meaning an arbitration case must be brought within two years of an investor learning of any wrongdoing. Some of these cases, though, can be brought up to five years after that, depending primarily on how the SEC classifies them.
If you, as an investor, want to begin an arbitration case through the FINRA proceedings, you have up to six years after learning about the fraud to do that.
A realistic reminder
It is important to remember that for all the legal proceedings, hearings, and hopes, you might not recover all of your losses. For that matter, you might not recover any. There is always a chance you were given specific information that protects the broker. This is why you must also remain vigilant, knowing where your investments are being sent as much as possible.
Unfortunately, you can’t do much else if you disagree with the FINRA arbitration results. Very few can be appealed. The Supreme Court feels these arbitration cases are just as binding as actual court proceedings.
Conclusion
Our investments often hold hope for our future and the future of generations to come. Whether you are investing on a small scale with what money you can afford or on a large scale with a diversified portfolio and capital moving at the speed of light every day, your investments matter. More than anything, they are yours and yours alone. No one should take advantage, intentionally or through negligence.
You are entitled to protect your investment and be owed it if lost in a way that had nothing to do with you. Despite the humbling header of the last point, there is still a lot of hope to be found if you are an investor who has been taken advantage of by a broker or a brokerage firm.
Knowing your rights, keeping up with the latest legal precedents, and having experienced professionals on your side is crucial to recovering losses in the event of fraud. Your money and peace of mind are your investment; ensure they are treated as such.
Join the conversation!