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Investment Advisors (Stock Brokers/Financial Advisors)

What To Do If A Stockbroker Harms You

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It is not enough to complain that your broker could have done better or that the investments the broker recommended went down in value - even if they went down a lot.

If you have been burned, consider the following steps:

Step 1. Consider the situation objectively. Is it a case of a loss which is inevitable when people invest or is there questionable conduct on the part of the broker or brokerage house? For example, did the broker do any of the following?

  • Choose investments which are unsuitable to your situation.
  • Not provide all the relevant facts about an investment, particularly risks which the broker knew about.
  • Provide information that is no true.
  • Violate a fiduciary duty to put your interests first. For example, by churning your investments when the broker makes money with each trade.
  • Unauthorized trading.
  • Failure to take action to prevent or respond to misconduct.
  • Failure of a manager to supervise broker employees.

 (To learn more about each, see: When To Consider Changing Brokers).

Step 2. If there is a misdeed, act quickly. The sooner you act after learning about a problem, the stronger the case.

Step 3. If the amount in question is sufficient, engage a lawyer who is expert in securities matters to contact the broker and obtain compensation for you. Following are some sources to help locate a lawyer with expertise in securities law:

If you cannot afford legal counsel, there is a small network of legal clinics run by law schools that will take on claims of $25,000 or less for people wtih incomes of up to $100,000. For excample, the Securities Arbitration clinic at Fordham University Law School provides free legal representation for aggrieved investors otherwise unable to afford legal counsel. offsite link. To find a clinic that covers your state, see: . (Keep in mind that during summer months the law students are on vacation so your case may be delayed).

Step 4. If you decide not to engage a lawyer: Write a letter to your broker and to the branch manager yourself describing your concerns with a date by which to reply (e.g. 30 days). A letter is preferable to a phone call because you may inadvertently say something which could weaken your case. (For safety, assume that all conversations about misdeeds will be taped by the brokerage - even if you're assured they are not).

Preferably have the letter reviewed by an attorney who is expert in securities matters before sending. If you can't afford an attorney, speak with the National Association of Securities Dealers (NASD). NASD can be helpful in these matters. ( offsite link or Tel.: 301.590.6500). Send the letters by a means which provides a receipt, such as U.S. Mail, certified mail, return receipt requested.

Step 5. If you do not receive a satisfactory response within your time limit, write the brokerage house's compliance department.

Step 6. Complain to the regulatory agencies: the Securities and Exchange Commission (SEC), the state securities regulator, and the NASD (National Association Of Security Dealers). Contact information follows:

Step 7. Finally, consider suing. If your agreement contains an arbitration clause as most do, you'll have to go to arbitration instead of court. If your claim is $50,000 or more, the arbitration will be in front of a three person panel including a representative of the brokerage industry. The other two do not have ties to the industry. If your claim is less than $25,000, there will be one arbitrator. If your claim is between $25,000 and $50,000, you can choose whether to have 1 or 3 arbitrators.

Lawyers may charge a contingency fee of up to 40% of your settlement or award - plus out of pocket expenses.

NOTE: Even if you are allowed to handle your case yourself, keep in mind that the securities broker and/or firm will inevitable hire a well-trained lawyer.

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